PSX News attended the Game Developer's Conference over the weekend, and they've posted a writeup of the Playstation 2 Unreal Tournament demo. They were also shown some of the new features of the Unreal engine, including the new outdoor environment system. Here's a quote:

Not knowing what to expect, I was given the chance to see the latest outdoor graphic technology being added to the existing Unreal engine (we may see it in the PS2 port in the future once it is officially announced). The outdoor engine allows gorgeous outdoor worlds to be rendered without losing frame rates through DirectX. The system will be a Fully Integrated Outdoor System.

The outdoor environment we saw featured gorgeous trees, that were realistic looking, and also contained independent branches. The leaves were detailed using alpha-blended (the leaves will feature deep detail such as veins going through the leaves). The water effects are still being worked on, but what I was shown was the same effects featured in the PC version of the PS2.