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Using UE3 as a development engine still greatly truncates development time. Unfortunately that does mean it can be used for low quality shovelware (Hail to the Chimp used UE3).

But in terms of being an ideal solution for console game development, I'd have to say no. It just doesn't run as well as it does on a PC; even a modest PC with an up to date VGA card.

I think the reduction in development time may well be the best thing UE3 has to offer console developers (which is often enough).

Even so, Bioshock didn't have any significant issues on the 360; it just didn't native render any higher than 1280x720. Frame rates were never an issue either.