You can tell a great deal about an American city from its homeless people. They express the extremities of the metropolis's temperament; show you where its inhabitants end up if you push the misfortune slider all the way up. San Francisco's endless throng dresses light and mutters and swats with graceful madness. New York's homeless are a hardier sort, having to deal with snow one month and fire the next. They're wrapped in newspaper, string-bound at the knees and elbows, and keep cardboard nests to retreat into when the time comes.

Los Angeles' one-legged beach bums, by contrast, crouch in a heroin glaze. They never walk far – but then why would they with a city spread so thin you need a car to get anywhere. "In Los Angeles all the loose objects were collected, as if America had been tilted and everything that wasn't tightly screwed down slid into California," wrote Saul Bellow. So it is with homeless people and, during E3, the world's largest electronic entertainment exhibition, held annually in the city, so it is with the video games. During this week of hysterical lights, yawning screens and constant sub-bass rumble, the world is tilted and all of its video games slide into the Los Angeles' twin convention centres. And during this week you can tell a lot about this city, its parishes of shooters, racers and platformers, its temperament and ambition.

That ambition, as with all creative endeavours that are tied in some way to technology, is largely one of technical ascent, each new product attempting to surpass the previous one. As such this was, as with many E3's of recent times, the year of the sequel: Skylanders 3, Battlefield 4, Assassin's Creed 4, Gran Turismo 6, Mario Kart 8, Call of Duty 10, Fifa 14, Final Fantasy XV and so on. Some of these titles aim to distract from the iterative nature by dropping the number and adding a subtitle but any invention at E3 2013 was, by and large, limited to new features and tweaks rather than entirely new types of play.

E3 2013 was, if the word on the street was to be believed, the one to be at. It's here that Sony and Microsoft fully revealed their forthcoming consoles, the hardware on which the so-called "next generation" of video games will be played. And, for the first time in years, there appear to be some notable differences between the two systems, both of which are due for launch this winter. Microsoft's Xbox One had a tough week, core consumers angered by the confirmation that they will need to connect the system to the internet once every 24 hours else be unable to play video games, and that they will be unable to lend or sell their games on when they're finished with them in the same way as they have in the past.

Sony capitalised on this ill-felling during its conference, company president and CEO Jack Tretton grinning through what will surely be the summit of his career as he talked through a bullet point list of the ways in which the company's forthcoming PlayStation 4 will allow consumers to buy, sell and loan games without penalty, just as they've always been able to. The whooping and clapping that greeted Tretton's announcement lasted for a full 60 seconds. The sense was that Microsoft is eroding consumer rights with such force and efficiency that mere inaction from its rival is cause enough for celebration. It may be the illusion of progress but, in the tribal world of video game hardware, it was enough. One man behind me screamed till his voice went hoarse: "We've won! We've won!"

Who are these people anyway, they who whoop and applaud every last trailer and cameo, these anti-critics, this "enthusiast press"? It's an ever-present question on the E3 show floor the next day, packed with thousands who queue for hours to play the forthcoming sequels, who pose with the booth girls (so heavy with make-up and affected smiles), who jostle to catch the hurled promotional T-shirts and tuck the shiny promotional posters in last year's promotional rucksacks. They roam with their belming guts and Super Mario T-shirts, blurring the lines of professionalism and distance. Who belongs at E3? Who is it all for? Where is its spiritual heart? For that matter, where is this city's moral centre?

In the taxi following the Sony conference, one senior journalist from the Sunday Times, a non-game player sent to E3 by the newspaper to offer an outsider's perspective, remarks that it was like watching the same Hollywood trailer 10 times in a row. "They all look the same," he says, "these expensive video games. They all have the same two themes: army or orcs." Viewed through an outsider's eyes, it's difficult to refute. The vast majority of games at the show centre around shooting, and even more revolve around combat. The weirdness of PlayStation indie game Octodad: Deadliest Catch, which features a besuited octopus pretending to be a businessman, offered the only aroma of the unexpected during the Sony and Microsoft showings.

Octodad: Deadliest Catch: one of the few offbeat titles

For the Times journalist there appears to be a thinness to contemporary video games that undermines their astonishing technical achievements. Indeed, where are our fresh expressions? Where is our thematic diversity? So much effort and invention in contemporary mainstream development is focused on such a tiny proportion of a game's makeup: the terrain, the physics, the fidelity and the realism. In one gun game presentation the spokesperson drew our attention to the fact that the gun's scope was dented, as if this inclusion of an imperfection from our reality added meaning to the game. In another, for a popular soccer franchise, the spokesperson boasted that the players can now turn their necks to head the ball at greater than 90 degrees – something that's "never before been possible". But this is the illusion of progress or, at very least, progress on a solitary front.

There are, arguably, computational reasons for this. Computers are proficient at calculating vectors in a 3D space and, as a result, attaching a bullet to a pixel and turning it into a game is relatively straightforward. When the rest of making video games is so challenging it's no wonder developers try to make things easier on themselves by focusing on projectile guns, arrows or footballs. Then there's a question of diversity. When the vast majority of game makers are white, middle class, male computer science nerds who grew up reading Tolkien, small wonder this ends up becoming the medium's go-to theme. There are too few voices in game development and, as a result, all of the effort and progress goes into making the old games look and sound better – Gran Turismo 6, Call of Duty 10, Fifa 14 and so on.

E3 itself offers a damning indictment on diversity in the industry. While women are now welcome (the show was forced to clean up its female-objectifying act a few years ago by the Californian state), there are still the odd indiscretions (last year one journalist was reportedly removed from an EA demo room for masturbating, while this year women attendants on the Ubisoft stand wore wristbands that read "booth babe"). And in general the show's aromatic audience looks and sounds alike, offering a sober reminder of the wider video game demographic.

I put the diversity question to Mark Rubin, producer of the largest of all video game blockbusters, Call of Duty. "I would love more diversity," he said. "You know, I saw this stat somewhere that showed that while Call of Duty is the biggest video game franchise, the others are Grand Theft Auto and Assassin's Creed. So I think there is diversity there. I'm actually excited about the next gen consoles because I think industry-wide it will help small, indie-ish developers who couldn't develop well on Xbox and PS3 to do more."

Shinji Mikami, creator of Resident Evil 4, one of the most influential shooting games of the last decade, agreed. "I am disappointed that genres are so limited right now," he said. "I want to see a wider variety of games. One of the things I'm looking forward to is indie games offering new ideas." For both Rubin and Mikami, independent games are where the hope for new diversity lies. Certainly indie titles were visible at E3, Sony showing its support for small developers both during its press conference and on the show floor, where dozens of smaller titles were playable. But aren't blockbuster studios absolving themselves with this attitude, passing responsibility to the indie space where the commercial risks are smaller, but also perhaps where the talent is unrefined?

"Big budget games have to sell a lot," says Mikami. "That can prevent new ideas. Or sometimes a creator's ego can block the new, as they don't want to fail. So small games are often the answer; they're someone's personal creation. Maybe one of those ideas will become a big genre?"

The palette of game types is limited by many factors: spiralling budgets, risk-averse publishers, the simple fact that shooting and driving games lend themselves well to computational recreation. Is this it? Is the medium destined to evolve on a small number of fronts? Before the show Adam Saltsman, creator of Canabalt, the Flash game that heralded the arrival of the most recent game genre, the endless runner, told me: "This is optimistic and naïve, but I think most of the meaningful genres are yet to be discovered. I think we have maybe five years to discover them before people are going to get really bored with what we are making right now."

The E3 2013 showfloor shows no signs of boredom. The high contrast, high fructose environment heaves and bustles with movement and excitement. Journalists hammer updates into their laptops, hoping to be the first to write up the bullet list of features that define a new title, while developer and publisher employees flip their name badges and queue for a play on the competition's latest. There's industry and activity. But is there progress?

The most frightening and legitimate criticism that one can make against the video game medium is not to do with the disproportionate number of games that focus on shooting, or their moral ambiguity. It is, rather, that video games lead humans away from true progress through the illusion of accomplishment. It's telling that Microsoft's meta-reward points scheme is dubbed "achievements" as if our virtual activity had some meaning beyond mere entertainment or distraction. Unlike the novel or cinema, video games are fundamentally task-based and, in completing their missions, we feel an honest sense of accomplishment. But it's the illusion of progress for players. In Los Angeles last week, it seemed as though the entire industry may also have been tricked.