First, I should preface this by saying that I have a healthy respect for the Foley artists in the world. It really is amazing to watch a good Foley artist at work (you can catch sometimes in DVD extras) making extraordinary sounds from careful manipulations of average, ordinary objects. We've known since the days of early radio dramas that our sense of sound is the easiest sense we know how to realistically fool. The many years of television and film production have nearly perfected much of the art of making the audio effects we hear "realistic".
Arguably there aren't any real innovations left to make in terms of audio effects. There is no "uncanny valley" for most sound effects and sound effects are the easiest and cheapest media we have the ability to record, re-record, manipulate, and re-manipulate. You can buy standard, over-used sound effects on CDs for cheap. They may be something that you've heard a million times, but they probably will still suffice for the job and there are some simple tricks that you can do with off the shelf software to help even the most recycled sound effect sound fresh and new.
So far the consensus in this month's round table is that audio can be critical to immersion. I certainly agree with that sentiment, but I think it is useful to dissect why audio effects are crucial to immersion. Audio effects, I think, are so effective in drawing immersion because they are ultimately "cheap sources of realism". In most cases it's going to be a lot more cost-effective to push for added realism in a sound composition than to attempt to fight the various valleys of uncanny in realm of graphics.
Here's a pitfall to be weary of, however: realism is not necessarily immersive in and of itself. Crysis has extraordinary effort put into graphic realism, but is it more immersive? A book has no audio effects, no graphics, but can it be immersive? Audio effects in a game obviously need to reinforce the immersion offered by other elements in the game to be truly effective.
That's about all I have to say about audio effects, I guess. I've found that audio effects very much are part of the larger gestalt and its rare for me to pay attention to them and usually that's because something is wrong rather than everything is right. Off the top of my head the game with the most positively remembered sound effects is Day of the Tentacle which is chock full of great Chuck Jones cartoon-inspired sound effects. (Some of which were mixed into the early Neil Cicierega (the Trapezoid/Deporitaz era) work Day of the Sound FX, if you want a weird new context to hear them in.)
I'll leave with an anecdote:
Half-Life and the Contractually-Obligated Usability Noises
The first Half-Life was one of my big reasons for buying my quadrophonic speaker set for my first computer, so it should be obvious that I appreciate it's sound design. There are just a few sound design choices that bug me, and continue to bug me in every subsequent game in the HL universe. These are the sounds that were chosen to make up for immersion-related decisions in the UI: the bloop/blrrp of "use key" and the shdoop-shdoop-shdoop of the power/health bar fillers. I can't tell you exactly why, but these noises sound too silly compared to the rest of the game and sometimes have been more than a little immersion breaking for me. The health one is weird to me mostly because it puzzles me. I can't for the life of me understand what would cause such noises... power movement doesn't usually cause much noise in real life, and I still can't believe that the HEV pulls much power at all (it can barely power that auxiliary flashlight!).
But more particularly irritating is the first noise, if I can't use an object, I'd almost prefer to get no feedback from the game. Sometimes I'll just spam the use button just to honk out any frustrations with a puzzle or level design. It's the opposite of, say, the horn on a Halo mongoose because that is immersive (yes, if I were playing around with a mongoose in real life I'd have way too much fun spamming the horn at passersby).
First, the "use" noises break the fiction of the HEV suit. You hear that noise when you don't have the suit. You hear that noise when you aren't even playing Gordon Freeman. You hear that noise outside of Black Mesa. It's not a bad noise, but after so much spit-polish on UI elements meant to encourage immersion it sticks out as a sore thumb. I've had to come up with my own fan fiction to fit this small minor detail into the larger world to keep from being accidentally derailed every time I hear it. On the one hand, there's the theory of the mystical sound gremlins, which is humorous but not quite sufficient.
Ultimately I've decided that some friendly committee in the Half-Life universe's Congress made the decision that all defense contractors should be given a set of standard usability sounds to make it easier for people unfamiliar with a device. These sounds were developed at the cost of millions of dollars of taxpayer money. They need to be somewhat catchy and "friendly" sounding, and entirely unique to their denoted task. The unfortunate side effect is that they become too catchy; they become viral earworms that get burned into a a person's subconscious. It seems that just about every employee of a defense contractor and even most marines have been infected with these darn sounds to the point that they think they hear them when interacting even with boring ordinary objects like soda cans and walls...
I guess it's funny that of all the things that require suspension of disbelief in the HL universe it is small minor audio effects that often most irritate me about the fiction...