LMAO...good one!!!

Am I the only one who doesn't understand why this is a handheld game?

I'll be honest, I don't think actual gameplay will look like that. At least, the lighting and lens flair won't (lighting coming from the TV set at the end, for example). I think generally the game will look like what's shown (which is absolutely amazing that Capcom is able to pull it off), but some of the lighting and motion blur looks CG. Regardless of that, I think this could easily pass as a PS Vita game, and be a pretty decent looking one to boot. The fact that this is on a 3DS is mind-blowing. I sure hope Nintendo is able to squeeze this kind of power out of their handheld. That'd be amazing if a new Zelda game for the 3DS looks this good.

Maybe because it's meant to be 3D gameplay, watch the scanner trailer.

For the gameplay, you'll never know what can do a machine with 8GB cartridges.

No one can honestly know what the 3DS could do since Nintendo didn't release any specs on the system.  Just comparing RAM shows the 3DS is already ahead of the Wii (128 MB FCRAM for the 3DS compared to 24MB 1TSRAM + 64MB DDR3 RAM on the Wii).  The only other thing we really know is that it is running a singel proprietary Nintendo/ARM11 processor for it's CPU (not dual as some rumors stated); and  the PICA200 GPU which is a vastly superior to both Hollywood and Flipper GPU!!!

It is weird that between her cleavage, the goo she finds, and the whole "hot girl being attacked and pursued by creatures, struggling futilely, and ultimately rendered helpless" (particularly her dialogue/voice during the process) reminds me of hentai?

You make a good point. However, I still stand by my original statement. Everything else (enviornments, textures, and character models) looks in-game, but the lens flair and the lighting at the end simply do not. It just looks too out place compared to everything else. It's not unheard of for this to happen. For expample, I just watched a cut-scene in Gears of War 3 where I felt that the lens-flair given off by a certain light fixture was CGed in. Heck, I've watched cut-scenes in Resident Evil 5, and I'd bet my life that some of the additional lens-flair was addened in afterwards. I'm not saying there's anything wrong with it, but It's just what happens in some games.

I thought the exact same thing.

great! and for anyone wondering yes these are cut scenes using ingame models and whatever...

It's possible to be an effect for the trailer, they do such things.