Yes. But there are 8 processors in the PS3, to fully hand-optimise the OS and game engine can take many more years to come with big potential performance gains.
Full hand optimisation for just 1 processor is a lot of work, let alone for 8 3.2 Ghz clocked processors. You can also redisign the engine to function in different ways (more optimisation not in the form of code optimisation but rather with regard to overall structure, where is all this power best applied), like opt to use for more procedural processing which is a lot harder to achieve but can yield big benefits.
Streaming can also be optimised. God of War 3 and Uncharted 2 are the best examples of this (much better than Killzone 2 which had in-game loadtime hiccups), but it can be improved further. Uncharted 2 and God of War 3 make heavy use of harddrive caching, but do not use harddrive installation, but by pre-installing more data directly (I mean not the lazy approach as with some multi-platform games) to the harddrive can also yield better results technically. Etc.
I am really looking forward to Killzone 3, I think it will be another eye-opening title to behold!
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