All formalized interactions are unreal to a certain extent. One of the goals of Shodokan is taking kata and making it work more organically by letting people practice waza and kaeshiwaza more freely. It's much more difficult (I think) to make a specific technique work than to let principle form the technique "spontaneously." And I think that has a lot to do with why it aint so pretty.
I agree with you totally. Unfortunately most Aikidoka, especially many in the Aikikai organization, think demonstrations are realistic self defense scenarios. They think static movements, flowing movements with grace, is the way Aikido replicates upon every scenario. Not at all the case in a real altercation, not even the case when you are angry with your 4th degree sensei who you try to test.
I tested my sensei once. He had to grab me to restrain the array of punches and kicks that were stinging him. I landed several low kicks that he was not able to stop and punched him pretty hard a couple of times to the face. Once he was in close, then he was able to execute an Aikido technique. My weakness was ground fighting and close proximity at the time. He applied what I think was probably a half Koshinage technique, then applied a choke to restrain me. He choked me pretty hard to make me stop. Really nothing like the thousands of Aikido demonstrations in the videos. I asked, what happen to the the crisp, pretty Aikido techniques. He stated there is Aikido for showing the technique fully and there is Aikido for self defense which sometimes needs to slightly adapt to the situation. I think realism is severely overlooked to often.