As far as I can tell it's a problem with CGI at all. Whether you're using precise physics models or learned embeddings from watching videos, reproducing certain physical events is computationally very hard, whereas recording them just requires a camera (and of course setting up the physical world to produce what you're filming, or getting very lucky). The behind the scenes from House of the Dragon has a very good discussion of this from the art directors. After a decade and a half of specializing in it, they have yet to find any convincing way to create fire other than to actually create fire and film it. This isn't a limitation of AI and it has nothing to do with intelligence. A human can't convincingly animate fire, either. It seems to me that discussions like this from the optimist side always miss this distinction and it's part of why I think Ben Affleck was absolutely correct that AI can't replace filmmaking. Regardless of the underlying approach, computationally reproducing what the world gives you for free is simply very hard, maybe impossible. The best rendering systems out there come nowhere close to true photorealism over arbitrary scenarios and probably never will.