The seven stories of In the Penny Arcade blend both the real and the fantastic in a seductive mix that illuminates the full range of Steven Millhauser’s gifts, from “August Eschenburg, ” the story of the clockmaker’s son whose extraordinary talent for creating animated figures is lost on a world whose taste for the perverse and crude supercedes that of the refined and beautiful, to “Cathay, ” a kingdom whose wonders include elaborate landscape paintings executed on the eyelids and nipples of court ladies.