I think you will find that Halo 3 is heavily based on the Halo 2 Engine, which in-turn was not based on the Halo 1 engine. Most developers use 3rd party engines to do additional Tasks, for instance Havok to handle the Physics, in Oblivion they used Speed Tree as the Tree Rendering Engine. The Halo 3 Engine is fairly capable effects wise, but I am un-sure if it takes advantage of the Xbox 360's Tessellation engine. (I am 100% confident it takes advantage of 3dc, because some of the scenes in the game look awesome for it not to). The move from the Xbox 1 with it's nVidia Geforce 3/4 hybrid GPU and 64mb of Unified memory limited the graphics that was displayed in Halo 2, if we essentially took that and threw it on the Xbox 360's with a Radeon x1950/2900 Hybrid GPU and 512mb of Unified memory, the developers are basically given 8x more resources to play with, which can be used to have larger clearer textures, more advanced pixel shading effects, bump mapping, much much much larger polygon counts, and thanks to the more powerful processor, more advanced Physics and A.I. (How much more powerful the Triple Core in-order 3.2ghz processor is in comparison to the Coppermine Pentium 3 based Xbox 1's 733mhz out-of-order processor remains to be seen). Remember the Intel Atom featured in Netbooks these days? The Xbox 360's processor is essentially a triple cored iteration of one of those but based on the PowerPC architecture. (In other words, cheap.) If one of the Bungie developers or someone in the know could comment, it would be greatly appreciated. :)