I didn't manage to read the whole thing, but here are some thoughts I had while going through it.
I think a really good point you make in your intro is that we don't really have a way of talking about games. You bring up the idea of "the best method of analyzing a game", and while I think the analyses you make later are sound and effective, they aren't necessarily applicable universally. That is to say there are significant differences in what needs to be accounted for when analyzing different genres, and every game talked about needs to be specifically defined. Plays, for example, can be classified as comedies or tragedies. Classifying games is WAY more complicated e.g. cover-based third-person stealth-action shooter. Yikes!
Even generically, we talk differently about first-person shooters and third-person shooters. When discussing ANY film we can reference concepts like camera movement, lighting, cinematography, and so on. If we try to apply these concepts to games, we sometimes find that they are wholly irrelevant. Sometimes the player can move the camera, sometimes not (sometimes the player IS the camera). Sometimes games don't have lighting (e.g. Donkey Kong), or the lighting is irrelevant. We can't even compare games' graphics that well (the closest analogue to cinematography). We don't have a way to talk about these concepts from film in the context of gameplay because games are very different from one to the next.
To even further complicate things, sometimes the camera, the lighting, the graphics etc. can BREAK! How do we take that into account when we talk about games?
At one point you call World at War "less innovative", and I do think that's accurate, but I also think that iteration is more important than people generally admit.
I don't like the yearly, iterative releases of Call of Duty games, but they represent a codification (zing!) that is important if we want stories in games to get better. I do agree that innovation is a good thing, but a code can be helpful in developing an art form. On the PS1 and earlier, games were usually wildly different. Back then pretty much everything had a different control scheme and different rule-sets. The codification that we see today allows us to better compare, contrast, and analyze games. I feel that the concept of "narrow genres" can work in a game's favor because they hopefully allow a developer to design around a story, rather than 'story around a design' as it were.
For example, if I want to make a blockbuster action movie I can watch Die Hard or Predator and get a sense of how to tell my own story in that genre. By following the codes of those movies, the process of realizing my idea is easier. I don't haphazardly shoot the movie how I intuit it might be shot, I look at tradition to see what is effective and how I can work both with and against the traditional concept of an action movie to improve upon it. I don't need to reinvent the wheel.
At a PAX East panel this year on "Plot vs. Play", the panelists (including Ken Levine) all agreed that story comes second in development planning. Budgets are limited and scenes get cut, so the story needs to be perpetually rewritten around asset generation. Codified games allow for better planning and hopefully as a result there don't need to be story concessions. I don't know that we've seen this result yet, but I also don't know that the various Call of Duty teams give a shit about their stories.
A final thought I had relates to cutscenes and pacing, which you discuss in chapter 1. We're really quick to say that the closest analogue to games is film (I've even done it here), but I think that a better, more specific analogue is TV.
TV seemingly has the same pacing problems as games. Every 7 minutes there is a commercial break. The screen can radically change from a tense scene where a character is about to get sucked out of an airplane if he can't hold on, to a cheery English lady looking directly at you, addressing you, telling you to buy gum. If we look at a 1/2 hour TV show with the commercials included, we see a distinct correlation with the story meaning and dynamical meaning that Blow outlines for games. The story of the TV show is interrupted by the story of the commercial, just as the story of the gameplay is interrupted by the story of the cutscene. Even the perpetually increasing intensity in games that you mention correlates to TV. Season 1 of The Office is not particularly outrageous. As the series goes on the stakes get higher and suddenly everyone's having affairs or losing their job on a week to week basis. We could perhaps say that in this regard a single game is like an entire TV series.
Why do TV stories work, but game stories don't? Are we holding games to an irrelevant standard when we try to compare them with movies?
There is A LOT of shit we just haven't figured out yet about games.
Sorry if anything I said came off as convoluted or unclear. I was trying to be concise and it's very difficult to generalize when it comes to games. Thanks for posting your thesis, it's been really interesting to think about!