It bugs me in games that try to be realistic, or when I try to write my own stories (I want to include magic in them but I just can't find a plausible way to incorporate it without running into the problems you described). Most of the time I play games I avoid playing magic users, given the option. I personally don't care for magic in fantasy in general.
Edit: TVTropes has some interesting reads on magic in fiction, but I'm at work and don't have the time to look through it:
http://tvtropes.org/pmwiki/pmwiki.php/Main/FunctionalMagic

It's easier to plug plotholes and special effects quota with "a wizard did it", than to design a setting with magic playing an integral part in the world.
For the same reasons you get what I lovingly call "bullshit setting" that many JRPGs use: magic, zeppelins, dragons, steam trains, electric lighting in streets, mud huts over massive stone sewers, guns, swords - all wrapped together, because the designers though they looked awesome, with zero explanation of how it all works.

I mean, at least Arcanum bothered to explain where the hell all the steam power came from, and magic was quite widespread, if not common as dirt.

The problem is that the moment you do something that changes the way how the characters perceive the world, a bunch of gamers will take up pitchforks and claim that it's unrealistic. For some reason, having magic and dragons is okay, but even the slightest change in general mentality is forbidden.

Let's take that agricultural magic you mentioned as an example. It would make sense when you think about it, many fantasy worlds have so much magic that it should be considered as mundane as pigeons, but it would mean that farmers accept magic in some form, and apparently medieval people were afraid of witches, so it's a no go. On the other hand, the existence of magic doesn't break the mentality, because medieval people believed in witches.

Since we don't have magic in real life I guess it's difficult to make a high magic game world where the magic is fully integrated.
In a world full of mages that can cast Fireballs, would military units move in close formation, for example?
Would the death of an NPC be such a tragedy? Why can't the NPC be resurrected when the player characters can?

I guess that's part of my question but at the same time its not. Obviously we are going to have restrictions on who we can bring back from the dead or not if you have a spell/potion to do so since its a game and part of the story they wanted to tell. But why cant we get a little blurb or quick explanation on why we cannot do it. I never thought about it quite like that before....kinda of fell stupid about that. Its true that magic can be common place but people still fear it deeply. But I guess my problem is that the villagers never seem to have a problem with the benefits of magic like enchanted equipment. But then they could in the next moment curse a mage and hate his guts. I may be overthinking this a ton but it seems to me its either a total hate of magic or acceptance. I am sure their could be a gray scale to it but at the same time if you distrust mages wouldn't you avoid things made by them?

And while I am thinking about it why do we gamers not demand fantasy that are not same generic worlds? I find it weird that a gene that lends its self to such open possibilities are some of the worst offenders in repeating the same ideas. Is it just tradition now, not taking in account of makers, that we do not move forward as much?

Because people (writers in particular) lack imagination ad use magic to compensate for that. Plus, a quadratic power setting is inherently horrifying, and people (players, consumers) love their power fantasies.

Only one example of quadratic fantasy done right I can think of is these sourcebooks for D&D:
[url=http://www.tgdmb.com/viewtopic.php?t=33294]2 [url=http://www.dnd-wiki.org/wiki/Book_of_Elements_%283.5e_Sourcebook%29]4
Even if you don't play D&D, these make for a good reading (just ignore the rules sections in that case).
And here's some non-D&D worldbuilding stuff (the Culture focus series, first 14 links).

Though there are people in our world that have a high understanding of technology, and though technological wonders exist and are quite abundant (computers, internet, and cell phones, for a few examples). Not all people are technological wizards and can understand, even on a higher level - much less build - such wonders.

I treat magic similarly. A fireball or levitating - or for that matter geting a house or even castle to take off the ground - might be quite advanced accomplishments, but most people would not even begin to understand the workings behind them even if they might be capable to use lesser magical items to help them heat water or make their bed lighter so they can get under to dust more easily. Just as most people in our world have no idea how computers and digital cameras really work - much less how to use photoshop to retouch or create stunning images - but can use bundled cheap-o applications to transfer their images from the camera to the computer and print them.

A lot more people can build a simple soap box car than can build a real car. And a lot more poeple can drive a car than can fix a broken one or have the knowledge of how to build one. I imagine magic to similarly have different levels of difficulty in understanding and execution.

I prefer when magic is unique, it makes it special and fairy taley or whatever one should call it. It also leaves a decent limit. Only some have the natural talent for it and only a few can master it. If everyone had magic it becomes mundane and in the end meaningless because it basically solves most conflicts and issues. I agree though that's it's a pity it's seldomly used for other purposes than combat or manipulative ways to progress the main plot.

Check the "Counselors and Kings" trilogy set in Forgotten Realms' Halruaa. There magic is mundane, but it's not meaningless. A world where magic is common means the world will adapt to its use, but it's up to the storyteller to get the feeling right. Best case? Use Clark's quote about technology and magic, and you can be set. Why can't the farmers use golems to plow their fields instead of horses? Probably because the golems cost 100 times as much as horses, so the cost is prohibitive for all but the most wealthy farmers. Why not use "Control Weather" to have a fine day for a parade? Why must we have someone light up the lamps at night, instead of using continuous light and covering them?
Check the Halruaa setting, it does have an excellent high magic setting, that it is believable.

Just like everyone having technology in our world solves most conflicts and issues? In some cases it seems to create more issues than it solves (especially when people are pretty much dependant on the technology but don't understand how it works), in other cases it seems like a solution in search for a problem.

Interesting point. My take is that magic in a game is normally just there if a player wants to use it for a character. I tend to not utilize magic for any character except for maybe an offensive spell or two to beat up enemies a bit before I start swinging.

But yeah, in a world with lots of magic, you rarely run into anyone who does anything with it unless they are specifically "magical" characters, or some stereotypical "oddball" loner who knows things other people don't.

I don't think it's a question of belief for other characters, because they are obviously aware of it and can see the effects, so perhaps in whatever world we're talking about, most people don't have the time and luxury to get so involved. Not much different than the real world in that sense. "Magic" generally seems to take years of study and dedication and most people are probably just focused on getting through one day to the next.

Indeed there's rather few games/franchises that directly approach this issue, where the game world is heavily modified by it, but personally I don't have much a problem with all of this. It's nice if the designers and artists come up with creative ideas tied to this but I'm usually not complaining about it if this is not a topic - unless of course it seems too obvious what doesn't make sense because of the presence of magic. Oh, I hate plot holes...

Personally I believe that one of the reasons why you don't even need any big explanations is that magic as it is usually presented in fantasy works is derived from actual folklore. People have always believed in supernatural events, abilities and creatures despite living in the same world we live in - they didn't wonder much about the "why" or "how", they just assumed that these things exist (else they would have come to the conlusion that these things are in fact not real, wouldn't they). This seems to be enough of an explanation why you can create a fantasy world where these supernatural things are present while the world as a whole doesn't differ much from ours.

But yeah, writers and artists are very ignorant all too often. They include vampires and werewolves but don't really ask themselves how their presence would change the culture of the peasants who suffer from their existence, how their architecture changes, what habits and traditions they have etc.. Often wizards are very mysterious figures and possibly outcasts who make a rare appearance but yeah, in scenarios where every stupid thug can learn magic tricks if he decides to practice this stuff (read: invest a few XP) it just doesn't make any sense if the world as a whole seems to be completely uninfluenced by this fact.

That's one of the reasons why I appreciate the Witcher series so much, perhaps the books more than the games. Sapkowski is one well-educated guy who has obviously spent a lot of time researching history and folklore and was able to create a world where things do make some kind of sense and people react to and use supernatural entities the way you would expect them to.

But frankly, so few writers/designers give any thought to this kind of stuff that I even highly appreciated Blood Omen 2's incorporation of the "glyph" technology into the game world. Sure, ultimately it was just a cheap way to integrate regular puzzles ("pull lever to deactivate force field") but at least it was a central part of the scenario and also some "unnecessary" dialogue between NPCs was just there to reflect upon its presence which gave me as a player the impression that the world as a whole does make some kind of sense.

So yeah, I actually agree with you.

Anything outside the typical Tolkien fan wank requires too much effort, is I think what answers your question. Plus RPG fans seem to want the typical Tolkien over and over again shit anyway.

It sure would be interesting to see magic's actual effect on society, but don't expect that story to come in a video game.

Magic in Tolkien's world works within the imaginary world because it's very rare, and because it takes a good deal of effort just to cast a measly fireball.
Elves, dwarves and orcs in RPGs are definitely heavily based on Tolkien, but magic is definitely not.