Here a better video of Reach.

http://www.bungie.net/projects/reach/vidaudio.aspx?c=58&i=24083

Sorry, this has nothing to do with what the actual game will look like. I wasn't looking forward to another cutscene.

This is all ingame footage Bungie said it was all ingame footage.

All Bungie cutscenes are in-game engine rendered. The actual gameplay will look like this, too.

If that is the case, then it looks like a huge leap over Halo 3.

It looks good. Too bad the trailer was pretty lame. Its really boring.

if it looks like that then the game will be a fantastic looking game, but i am disappointed in the facial graphics and rendering they arent very good

There's a difference between in-engine and in-game.  No idea what the difference will be for Halo: Reach, but in-engine is typically pre-recorded with nothing else processing except what is absolutely needed on a super high end computer.

Best example-- Left 4 Dead.  All of their cut scenes are in-engine on their insane computers but the actual game models are nowhere as near expensive as those.

I didn't think developers would record in-engine output for cutscenes.  Seems like it would a better practice to run them real time in order to conserve disc space.  This is what Bungie always does.  They never play video for their cutscenes, you can tell this by texture pop in that would occur :)

Some stuff is pre-recorded, some cut scenes don't need to be. 

It's generally done in-engine rather than elaborate CGI because it's infinitely cheaper, you can hide loading times, and you can brag that everything is in-engine.

Another good example-- Uncharted.

I haven't done this in Uncharted 2, but in Uncharted change Drake's shirt and then play and you'll see which ones are pre-recorded in-engine and which ones aren't.