Maybe he meant videography. A game engine is more like a virtual video camera anyways (depending on who you ask...some people think it should be more like a person's eye, with no lens/camera artifacts).
Yeah. Personally, lens flare drives me nuts. It's like instagram - you can show me a perfect picture, but instead you're applying a can't-see-shit filter.
If you frame it that way, I think B is more believable, because it accounts for the television/monitor, the controller, and the general fact that the player doesn't experience any of the physical repercussions of his/her actions. If B was what was really happening, then of course there would be camera effects, and of course I would need a monitor to view the actions from the camera, and of course I would need a controller. If A was really happening, then why would I need any of those things? So A is a bigger jump to immersion.
The Source engine does a great job with this, but it can really get in the way of gameplay.Bad "bloom" can really hurt your ability to aim at something when emerging from a dark corridor into bright daylight; depending on the game, this may be a feature--but is generally unfun.
Lens flare in photography and videography tends to be seen as a defect and something to be avoided. That's why lenses have use expensive chemistry for anti-reflective coatings.
When lens flare is used it should be a conscious choice.
Lens flare tends to be reserved for scenes in space. And most of these scenes are not real, but created in a computer, and the flare is added to create "realness". Well, that's fine. Sometimes it works, sometimes it's mocked. ('NEEDS MOAR LENS FLARE' has some useful web search results.)
But, for games, I tend to like lens flare, and it tends to help immersion. (If used carefully.) I have no idea why. It's probably a good idea to allow users to turn it on or off.
If someone is going to start to nitpick about the unreality of B versus A, then they ought to also address the lack of a dynamic focus and changine depth of field that our visual system handles so automatically that we are unaware that it is even happening and that CG doesn't do this.