I have no clue what the dragons are (the old video is real time), but consider this:
* This game does seem to be built from the ground up and is a PS3-only solution.
* UE3 has some nice large creates that, when splashed with full effects, look insanely detailed.
* The footage has been mainly in the air, meaning there is a substantial budget of resources that can be concentrated on the dragons. e.g. PGR3 has like 1M polys in the Brooklyn Bridge. The cars each have 80M+ polys. Taking LOD into consideration, that is still a HUGE amount of polys in memory and on screen, even after culling and LOD.
* It was suggested that the 100k figure may be based on a base mesh + displacement mapping for larger detail + normal mapping for finer detail. While the source dragons are probably in the millions, there is no reason to believe that 100k is out of reach based on PGR3. They would just have to do LOD, Geometry Instancing, and some nice footwork in regards to the mesh/displacement maps. Not easy, but since the FOCUS of the game is the dragons, it seems viable.
* Factor 5 has always been on the technical cutting edge. Even on the GCN, their efforts shined. The GCN Starwars launch game is STILL one of the best games on the system. It ROCKS.
IMO, we should be expecting more next gen games living up to this level of detail. My statements about giving the 360 a break apply here as well. Gen transition is STILL under effect. But we are starting to see the fruit of totally abandoning old engines, not upgrading them, and starting fresh.
Heck, look at UE3. This is a one-size-fits-all multi-platform PC centric solution. And it is some of the best stuff out right now. BiA, Rainbow Six, Mass Effect, etc are all gorgeous compared to the "next gen" median. We should expect a TON more from console-specific software. ESPECIALLY first party stuff.
In late 2007, like I said way back in Spring 2005, we will begin to see our FIRST titles developed from day 1 on the final hardware. At that point we will realize how much the old consoles, PCs (still supporting DX8 in most cases!), and the rush to get titles out has neutered the software we see today.
Anyhow, I am more curious why Lair was not a CENTRAL part of the Sony E3 Press conference. Lair, Killzone 3, Motorstorm, Devil May Cry 4, etc... A lot of hyped titles that should have been central to the show IMO. It is anyone's guess why they were not there.