So you claim that Zelda game iz using tessellation?!
No I did not. I said those 2 things will be what separate this gen from last gen. That, and a more consistent *actual* HD resolution.
but it doesn't look better. and there's no AI in that demo
Correct. And I don't want to resort to posting GIFs, as above, but the cutscenes (running on dev hardware) be it the bird demo or the zelda demo could not be accomplished as they are on the PS3/360. At least not smoothly. What appears to be full global illumination would beat the living crap out of the current gen systems.
The beauty of this gen to next gen, however, is complete scalability. Halo 4 will be released for 360, but if the Xbox3 makes it's late 2012 release date it will be released for that system as well. The equivalent in "turning the sliders up" on a PC game.
Looking at current gen's "high end" is about right in regards to expectations - simply due to how drastically the thermodynamics of high-end hardware have changed over the last half decade.