This article is from the MPEG FAQ, by Frank Gadegast phade@cs.tu-berlin.de with numerous contributions by others.
Several improvements can be made to the MPEG syntax while remaining
within the framework of block based coding. As implementation
technology improves with time, the ratio of computation to sample rate
can be increased for the same implementation cost. With each
evolutionary stage in the shrinking of the semiconductor lithography
process (line width), more complex coding methods become economically
realizable. Some of the well-known or well-anticipated areas for
improvement are described below:
Intra coding:
For intra pictures, subband methods such as wavelets combined with
improved quantization and entropy coders could gain as much as 2-4 dB
over MPEG Intra pictures. The problem becomes more complex when
considering the coding of Intra Macroblocks in mixed pictures, such as
P or B, since the extend of a subband must, in the simplest of
schemes, be limited to the dimensions of a macroblock.
Prediction error coding
One of the strongest gripes against MPEG is the use of the DCT for
decorrelation of prediction error blocks. One explanation is that the
DCT is suited for the statistical correlation of intra signals, but
less suited for the statistics of prediction error (Non-Intra) signals.
One common proposal is to replace the DCT with a Vector Quantizer.
Prediction error (Non-intra) blocks typically contain far fewer bits
than intra blocks. (The bits that comprise a Non-intra blocks can be
thought of as having been previously distributed over previous blocks
in previous pictures in the form of coefficients and side
information...)
Finer coding unit granularity¿s:
The size of the transform block could be made smaller, larger, or both
(myriad of different sizes). Likewise, the size of the motion
compensation block can be made larger or smaller. The cost is more
complex semantics (more decoder complexity) and the overhead bits to
select the block size. Instead of sharing the same side information,
the blocks within the macroblock could be assigned their own motion
vectors, macroblock quantization scale factors, etc.
Many advanced techniques were in investigated by MPEG during the
formative stages of the specification, but were eventually eliminated
for falling below a threshold set for coding gain vs. implementation
complexity. Often, proposals presented a significant departure from the
main stream algorithms under consideration. Each bit added to the
syntax, or rule added to the semantics represents several gates to a
silicon implementation, or from a software perspective, an extra table,
if-then or case statement at multiple points in the decoding program.
 
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