It was all rendered in the Source engine. The only questionable things about it are the DoF and motion blur effects. The maps, the models, the animations, etc.: all are "the game" though yeah, not actual gameplay taking place. The Scout running is a good example of how things will look (probably minus the motion blur and maybe the DoF)
Actually, DoF and motion blur are both realtime effects now in Source, AFAIK (both are used in the Portal movie released yesterday, and - if memory serves - in the EP2 teaser that plays at the end of EP1), so I don't think there's anything questionable in there at all.
and Wiki agrees ;-PIt's a cinematic and not gameplay, which is a bit of a drag, but I have no trouble at all believing it was all rendered realtime in-engine when they did the capture..
I am absolutely LOVING the art style on this. Very excited to play it!
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It may be that one day a young man will adore a Pinata.
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I'm not even angry. I'm being so sincere right now, even though you broke my heart and killed me.