There's a big difference between CGI, scripted in-game cutscene, and gameplay. That gif from the trailer is the 2nd of those, and very well-made. A scripted in-game cutscene can still display things that couldn't normally be run while playing the game though, so don't confuse the two.
Too much CGI is very annoying, and distracts from the actual aesthetic of the game. I think Reach looks great as it is, even if it's not shattering graphical barriers. It'll be a blast to play, and the AI adjustments and customization for multiplayer, plus the great maps (Blood Gultch 2 w00t) ensure I'll be playing it for years to come. Hell I may never buy another Halo game with Bungie gone.
PS: This isn't actually a new engine, but rather a gutted and refitted Halo 3 engine. There's not some "Reach" engine tool-set floating around for Xbox developers to use. This is just heavy stripping and reworking done by Bungie on their own established tools.
