Is this why so many games have some muscle-bound guy/gal in near skin-tight clothing be the lead? I never knew cloth simulation was such a difficult problem. I remember Lucas talking about this stuff when he was making the prequels, but I assumed everything has been long solved by now.
That said, I was pleasantly surprised in GTAV that when your character gets wet, his clothing and hair look wet and stay wet for a bit. I don't think I've seen that before.
You don't need cloth simulation to do have characters with clothes - you can animate it manually or simulate it offline - the problem with "baking" cloth animations is that they can't interact with the world (no collision, no wind interaction unless you bake/blend that, etc.)
Wet clothes in GTA V is actually a shader effect rather than a geometry effect: It's just adding a specular shader to the normally diffusion-shaded surface so it looks like your suit, hoodie, or wife beater is soaked with water. I'm pretty sure the geometry stays the same.
I don't know about games, but in movies, at least, a common trick to make simulations look wet is to simply increase the mass of the wet object. This causes hair and clothing to drape.
That said, I was pleasantly surprised in GTAV that when your character gets wet, his clothing and hair look wet and stay wet for a bit. I don't think I've seen that before.