Hi ya!
Thanks for posting these links!
TVeyes pointed this out to me in IRC, I have not gotten a chance to look closely at it… (I was buried knee deep in a Linux partition without proper sound or video support)
I have been modding with unreal science unreal 1… it is by far the easiest game engine to developer with, right out of the box…
as far as game engines go I have been toying with CRYTECH sandbox… all I have to say is WOW! as far as the development and Modding capabilitys… they use a similar thing for the normal maps as you described…
Here is a link to ATI technology’s developer page… they have a similar free running application for making normal maps from 2 models…
http://www.ati.com/developer/tools.html
they also have a plug-in version for all the 3ds pirates out there…
while you are there pick up a fresh copy of Rendermonkey and toy with some of the new directX shaders…
I have been really disappointed in the last 2 unreal episodes. I realy feel that the release of unreal 2003 was just a way to raise funding to actualy finish UT2004.
This new unreal3 looks really promising! I think that there is hope for the unreal franchise after all 
I figured after the release of DOOM 3 I would convert back into an ID software MOD maker again (I have done stuff for Quake 2, Quake 3, and RTCW) …BUT, unreal 3 looks totally SWEET!, I think after unreal 3 release I will open up unreal ED again and do some world building 
Thanks for bringing this subject up DreamWalker
now I have something to look forward to 
The video is total EYE candy 