"The Unreal engine as a whole isn't incapable of doing fairly large outdoor areas - examples can be seen in U2-XMP."
But we're talking about the future Unreal Engine. U2-XMP and UT2004 don't have true dynamic lighting and shadows do they? Unreal has always been able to do huge areas. It's just when you attempt to dynamically light all those extra visible surfaces with all those extra light sources that large areas become impossible.