The second problem is that 10^4x improvement in level of detail does not mean 10^4x aesthetically pleasing (or in fact, more aesthetically pleasing at all). Ray tracing gets very expensive the moment you start adding multiple lights, specular materials, partially translucent materials, etc. It is very, very difficult to do that in real-time even with standard geometry, let alone with 10^4x more polygons. This is why their level doesn't look nearly as good as modern games despite higher polygon count (compare it to the unreal demo: http://www.youtube.com/watch?v=ttx959sUORY) They only use diffuse lighting and few lights. In terms of aesthetic appeal of a rendered image, lighting and textures are everything.
Furthermore, one of the biggest impacts on how aesthetically pleasing a rendered images looks is made by global illumination. That's also something that's extremely difficult to do in real time with raytracing, but is possible with gpu hardware with tricks. The trouble is, these tricks look much better than raw polygons.
Again, I love what they're doing. Real-time ray-tracing is without a doubt the future of graphics, but it would be nice if they were a little less sensational about the technology, and more open about the limitations and open issues.