From what I can see, it looks like they pushed the polygon count for the character and enemies and are using prerendered backgrounds, like Resident Evil. Hopefully they'll use a simple wireframe for the levels and texture it with the prerendered backgrounds to create a dynamic level instead of a static one.

Stylus play should be interesting, although control issues have been cited by early witnesses. Looking forward to this release altogether, might be a revolutionary step for the DS, seeing how the best 3D action titles are mainly movie games and first party platformers.