I''ve noticed that many, if not most 2D games nowadays feature "ray-traced" graphics. In such games, as you probably know, the sprites, background tiles, etc. look a lot nicer than in non "ray-traced" games. How can I take my 2D BMP images and ray-trace them so they look nice and robust like such games? Is there a filter or something in Photoshop that can do this? Or is there a 3D rendering program that can get this done?

ray traced are NOT better OR worse then other forms of art. personally i think ray traced graphics (like much 3d art) can look too perfect. with the depth sometimes accented too much by the lighting. for some reason many artists dont bother using soft subtle lighting and ussually stick to very harsh lighting. shrek and final fantasy are examples of good movie 3d art. there are others but this does not answer the question.

for ray traced graphics you must create 3d models and render them in something like povray. i think blender also supports ray tracing at some level as well. unfortunatly you will have to scrap your 2d art. personally i would stick to the 2d art you have unless its really bad and you feel you can model things better in 3d. you should research its since you apparently know it as a buzz word only.

steps for raytraced artwork in sprite form:
1. model the things you need in 3d.
2. animate and set lighting.
3. now make sure you set the camera in the postion you want like from the side and ensure lighting is going to be uniform throughout ALL the sprites you create. also make sure only the model you are rendering for the sprite is in view and that the background color is set to your colorkey.
4. render the frames and save to bmp, png, tga.
5. do finishing touchups in your perferred 2d graphics app
6. now you can use the ray traced sprites in your game as sprites.