I think some people are just getting really defensive about Naughty Dog. I don't think anyone is suggesting they're "cheating," just using visual tricks and smart optimizations like any other developer would. No one is downplaying their achievement.
I'm not convinced that's a rational assumption. Uncharted is not an open world game, by design. I'm not sure why we'd assume it could be. What does "a more open world" experience mean? If you mean bigger set pieces, then maybe or maybe not. They said Uncharted 2 maxed the PS3, which is probably not true exactly, but even providing bigger set pieces could push beyond their memory budget, depending on how their streaming works. If you're talking about a true open world experience, where you have many square miles mapped, that can be traversed in any direction, then you're talking about something very very different, and I'm not sure we could assume this engine could do that with any quality similar to Uncharted 2.
I think it's fairly rational.
Look at GTA IV, yes it's a fantastic looking experience, however, the interactivity of everything is extremely limited. The majority of the buildings are not accessible, and it doesn't have the "intamate" geometry that Uncharted has. If you remove a lot of that "intamcy" of the indoor environments in Uncharted 2 (rather, the engine) and move that focus over to buildings and LOD, then you can make more room to load more for the unpredictable nature of the player.
I'm not suggesting their engine could make an open world game with the exact same quality as Uncharted 2, visually, I'm suggesting that the engine would almost certainly be capable of some "open worl" environments, i.e. area's you can traverse in any direction.
Granted, part of the reason it looks so good is because the LOD is obviously scripted in such a way to draw things cleverly when the player cannot see them, using camera angles and what not to hide this from view. However, I think that they could still tweak their engine to do something full scale ala inFamous or GTA IV.
Afterall, you can skip a cutscene and the next area is already completely loaded, which is pretty impressive considering the complexity of the environments.
So again, I don't think their engine can produce an Uncharted 2-like visual experience, but I completely think it would be capable of a GTA IV or better visual experience in an open world game.