Yes, almost all the demos shown at the presss conference were in some way pre-rendered.
I don't doubt though that both systems will be capable of something like that after developers have learnt everything about the systems after a few years of practise.
You might notice, I said both systems
The reason i think that will be, even though in the next few years, graphics chips would have moved on in the PC genre, developers even then wouldn't be using the full capability of the chips.
On a console however, the chips can be pushed since every game can be made just for that one graphics chip, etc, so they know what they are doing.
This leads to alot of power, and more power than you could have on the same chip on a PC since developers have to be more careful when developing for it.
You'll see this more in games though developed just for one console, like for instance Kill Zone for the PS3. Multiplatform will have the same type of effect as a PC, especailly if the developers don't bother to make it work better for the console in a more efficent way.
Games based on Unreal 3 will be seen for a while, and even though its good, it isn't to scratch on what Killzone is supposed to produce,
and the new real time game called Project Offset, which i believe has a better engine, and was made by 3 people. (check that out)
But when more engines are produced for each system, and devrelopers start building games for each, we'll see an improvement.
This is why I believe both systems have potential.
I know one thing though. The Blu-Ray support on the PS3 if that becomes the number 1 format, will be the best included gear in any of the both systems, allowing you to be ready to play blu-ray movies straight out of the box, and for a lot cheaper than the drives bought from the shops! Even with all this gaming technology in!
I hope Blu-Ray wins though. HD DVD is alot cheaper, but I don't think it houses as much ground.
if Blu-Ray won, the technology would soon drag prices down anyway.