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Soriku said:

I think you guys are taking this quote out of context. What he means is that the CG cutscenes in trailers we saw will all be played except this time with real time graphics instead of CG.

Here's an example of what they did with KH BBS.












Except this time since Versus is on the PS3 it will get really close. The andriasang impressions of the latest Versus trailer seems to suggest the same.

http://www.andriasang.com/e/blog/2009/12/20/ffxiii_versus_trailer/

You can tell the footage is realtime because the image quality isn't as clean as CG. Aside from that, though, you might not notice the difference. The modeling detail, animation, and particularly the lighting are all first rate.

HOW GOOD DOES BIRTH BY SLEEP LOOK!!!! THAT'S A PSP GAME!!! SO HYPED!!!