SL should licens the Cry Engine 2 from crytek. It has already been licened by the company Avatar Reality to create a game much like second life.
Everything from its advanced animation system
http://www.crytek.com/screenshots/index.php?sx=cryengine2&px=character_editor.jpg
To the crazy graphics that are very close to real life
http://maxygames.no.sapo.pt/Crysis.jpg
and its incredible physics engine
http://www.youtube.com/watch?v=sFMLS8sjyzY
make it the most incedible game/engine i have ever sceen.
All of these images are acutal in game screenshot/ movies running under DX10. Dont say its not do able since it is already being done.
This final video show just some of its many features
http://www.youtube.com/watch?v=ogYMkkrmvC0&mode=related&search=
