Gore needs to be in the game,
My personal feel is that gore doesn't NEED to be in anything. (Heck, there are even examples of non-gory "horror" games, that cause scares & suspense without constantly throwing buckets of blood - psychological horror, not gross-out horror.)
Now, there's space for different styles of games for different people. But I'd rather that not
all "action" games throw in all this "realistic" gore, and therefore lock whole groups of gamers out of playing their genre.
If for example you have a sword smashed against your arm then the sword would go through your arm should fall off and there should be visible damagae from other weapons such as hammers should visibly leave your enemies head caved in...
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It needs to done in moderation
And see, here's where personal tastes and opinions come in. This is all very subjective. I think that "moderation" is Oblivion-style blood splashes and decals. "Sword going through arm" "visible damage" and "head caved in" all sound extreme and immoderate.
(In fact, if done in a "realistic" and "rational" way, they actually sound worse than Fallout 3 to me - that stuff was so over the top and cartoonish that you couldn't really take it seriously. Make injuries "realistic", and all of a sudden they'll be
much more disturbing. )
....and yeah, this topic is super-necroed.
Edit: just some background. I'm 40, and I don't have any issues with "oh, I can't have that blood here because it'll scare the small kids/parents". I've been playing "fantasy" games, from pnp to console to PC, for thirty years. I've never played these games for "blood & guts", but for the Adventure of it. And this is why "but it's unrealistic" and "oh, a sword needs to cut people" and similar things don't really mean a thing to me - that's not why I play these games, and I don't need it. And I'd be sad if some twisted need for "visceral realism & violence" became a standard that drove me from a genre I've participated in for decades. (the "well, maybe you shouldn't play these games" argument.)