Currently the block time is around 17s
The average is currently between 14 and 15 seconds.
but the confirmation time is even longer around 2-3 minutes.
That depends on the gas price you're willing to pay, and the current state of the gas price market. Have a play with the "Gas-Time-Price Estimator" on ETH Gas Station to see how the average transaction time changes.
Moreover, as I understand even if the transactions-per-second are 7 we still need to wait the confirmation time before considering those transactions valid.
Transactions-per-second, at the time of writing, is about double this. (I can't find a source, but the network tops out at around 15, and we're pushing the block gas limit at present.)
The number of confirmations considered safe is subjective. It will depend on your risk profile. Ethereum (currently) doesn't have any concrete finality, in that given the right amount of power, any transaction could be reversed. There is risk associated with this.
Does this imply that the blockchain is not yet a viable solution for real time application?
From your example of a real-time application, no, it currently wouldn't support something like this. But then it could be argued that a blockchain wouldn't be a good fit for such a thing. Distributed and decentralised computing is a huge discipline - blockchain is just part of it.
Will someone ever build a very fast blockchain with confirmation times around the tens of milliseconds?
Any answers to this would be speculative :-) It depends on how you're defining "blockchain", and how it overlaps with the rest of the distributed computing world.