We haven't seen embedded passive components yet, but they are coming. While active componentry continues to become more and more integrated, passives never seem to go away. Yes, they are cheap and they are pretty small, but each one still has solder joints and has to be purchased and managed. Each one adds several potential error points in the design, procurement and assembly processes.
When the parts get so small that you can't even see them (0201, 01005), all of those potential problems are amplified. For example, we ask for 5% extra on most passive parts to allow for a few to drop off into the assembly robot, but 50% extra on 0201 parts. Some sources claim that the lowly passive ends up accounting for as much as 60% of the cost of a completed board.
One of the emerging solutions is to embed the passives in the pcb. At first glance, it sounds rather difficult to stuff chip-caps or thin-flim resistors in the middle of a PCB laminate and squeeze the whole mix together, but that's not how it works. The resistors and capacitors are actually created in a manner similar to the copper layer. Different materials are deposited on an internal PCB layer between copper trace end points. The resistor materials tend to be copper in controlled thickness and width or an organic matrix of some sort. Capacitors can be made by carefully locating copper pads of a specific size on either side of a thin insulating material.
The end result is a finished PCB that looks like any other PCB, is about the same thickness but has half or less the passives to be placed during assembly. This delivers advantages in size, signal integrity and reliability. Eventually, it will deliver cost advantages as well. For the moment, it is so expensive as to be viable in very critical applications.
When really small just isn't small enough