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Usually it's the former, but this only applies to games that have a veneer of realism to begin with (shock1/2 aren't supposed to be computer simulations or fantasy worlds or dreams as far as I know)
Not so sure about that. I think they did consciously aim for simulated worlds with U7, UU, SS1 and DX especially when Spector had a say in things. But of course without losing the game in the process. It's got to strike a balance and if realism stands in the way of fun, it's got to take the backseat. That's a quite subjective call to make though. The existance of little details like a camera light is not standing in the way of fun and should be included if possible. If anything they lend depht to the game.
For one thing, I'd like to see how cyberspace is handled in this one.
Not so sure about that. I think they did consciously aim for simulated worlds with U7, UU, SS1 and DX
You misunderstood TF's post here.He wasn't saying that System Shock wasn't designed as a simulated world. He was saying that System Shock isn't supposed to take place inside a simulated world in-story. That is, Citadel is supposed to be a real location in that world, not a computer simulation of one that the hacker is playing.