Guerilla is an internal team now, aren't they? They also said they were working on the demo since November. I seriously doubt you invest 6-7 months in all that art and dev time just to create an unattainable FMV short. Afterall, why create all those different models (mostly instancing I think, but still) just so you can do it all over again for the actual game? Seems like the smart thing would be to use the in-game art and create a demo scene using the lighting and texturing targets you expect to get from *early* in the system's life. I don't expect KZ2 to be a launch title, or even first-gen for that matter. I wouldn't be suprised to see it turn up as an early second-gen title. No source on that, just a hunch.
The Ghost Recon 3 rendered vid looked insanely gorgeous as well, and that's supposedly a target render as well. If they're aiming for that level of quality on the Xbox360 (and the hw in both machines should be able to do it), then hopefully Killzone2 can achieve its target on more powerful hardware. I don't want to turn this into a debate about GR3 btw. Just using it as an example since I thought it also demonstrated a visual concept beyond what we saw in the presentations, yet clearly meets the expectations of what many of us expect from the next-gen.
To be quite frank. If all we're gonna get is the level of graphics seen in the two presentations, then I don't see the point in shelling out $300 for any of the new consoles. I expect this gen to bridge the gap to CG considerably. And it seems that will become a reality now. All IMO. PEACE.