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That Alan Wake video that was shown at IDF in 2006 (man that was three years ago now!) looked pretty impressive in terms of terrain graphics etc.
http://www.youtube.com/watch?v=Qmzu2Bmv4pA&feature=related
So those guys have had three years to work on it since then and we still are nowhere near its release.
So my theory is that if the game looked awesome three years ago that with three maybe four more years of work it could turn out to be the new benchmark in terms of graphics and physics in games.