SOURCE: http://ps3.ign.com/articles/954/954097p1.html
Just in case there's any doubt as to if this is gameplay or if it can be done, read the following paragraphs, with quotes from the DIRECTOR of GOWIII Stig Asmussen!!!
From that point, Asmussen stepped back and prepared to show off the first trailer of the game. The trailer, he stated, was a piece of work that had been completed last Fall, but the team had been waiting to fully unveil the entire thing. Everything within the trailer itself was "100 percent real," according to Asmussen. While the action within the trailer was scripted to tell the story that he wanted to tell for the trailer, "everything that you see in here is using actual in-game engine, resolution, effects. Let me assure you, we can draw Kratos in these levels and we can do all this stuff that's happening in here right now."
And just to further drive home the point of how technically amazing this game is read the following!!!
For God of War III, Asmussen mentioned that these are much more than a simple backdrop to the action. Instead, they are "living titans, characters that are functioning, breathing parts of the world." These titans are actually moving levels that Kratos will fight across, climb onto and navigate as he tries to destroy Olympus. Trying to bring this sense of scale into perspective, Asmussen mentioned two facts that would drive the size of the Titans home. The first one was that many of the Titans would be larger in size than that of the Sears Tower in Chicago, which gives a real world perspective on these character/levels. The other was that the Titans were so large that the large Medusa Lair from God of War II would easily fit in the palm of Gaia's Hand.
