After watching the clip of Mass Effect that just went up at 1up.com, I'm prepared to lay the entire animation shortcoming squarely at the feet of SK. Go watch it if you don't believe me. Besides the excellent facial animation, the accuracy and weight of Shepard walking and turning is spot on.
I watched it about an hour ago and the framerate is pretty choppy and the bar scene was pretty sprase in many ways, so I would hate to see what happens when you are running in huge areas with dozens of enemies attacking on screen. As for the animation, I don't think lip sync/gestures on characters talking can be compared directly to interactice combat. When people are moving their hands 6-18 inchesand small gestures with their face that is one thing, getting smooth animation while swinging a sword around in a very, very fast manner while chasing down enemies is another. Part of TH's problem in the videos is how the animation was so un-dynamic and how the collission detection was off. UE3 is focused around FPS--shooting projectiles--so I would have expected SK to needed to rewrite the entire segment of the engine. Who knows though... the game has been a mess in motion.
As for framerate, that could be a shortcoming inherent to UE3. But SK had a rather stable framerate prior to E3, so I rather doubt it cannot be overcome.
TH had poor framerates before E3 as well--they only got worse before E3. The stolen footage before E3 had an unstable framerate and long, long pauses where the game froze.