Normal bullets can be stopped by armor, and we are very close to being able to deploy laser weapons that can detonate explosive rounds while still in flight. Test weapons have knocked out incoming artillery shells. Whether this would work on an RPG given the very short flight time is unknown.

I would really hesitate to automate the return fire option. If you have been reading IraqNow (highly recommended), you would have read about a number of situations where the option to start shooting required some serious thinking, with a lot of consequences for the wrong decision. Would a kid throwing a rock set it off? How do you tell a rock from a grenade if you are a radar system? Automatically operating guns give me the willies.

A system that would show a soldier exactly where the fire was coming from (a big red X on a sight screen or something) and leave the return fire option open, would be very useful. I don't see how this would be impossible with some form of Doppler radar technology.