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"Massive downgrade" is a big exaggeration and the the handpick footages in the OP doesn't do the game justice. There were other characters in the trailer that looked better modeled.
They were showing Xenoblade on Treehouse@E3 a few minutes, the game still looks good. Technically speaking, it never looked that great or special from the start, but the vastness of the environment and size of monsters is really what makes this game shine and those still look the same as before.