I'm pretty sure this particular demo is all real-time (otherwise, why wouldn't they use the higher poly count people that appear in GT4's intro?). This also marks the first time we've seen more than six cars in any Gran Turismo game (intro or otherwise). And, NetViper, the intro graphics from GT3 (after the real footage) were rendered straight from the game's replays...which hardly sucked.
I can't say the same for all the demos shown in the press conference, but Sony showed several that were definitely running real-time (specifically were demonstrated as being interactive) and those were far more impressive visually (Fight Night Round 3, Unreal 3, and a real-time recreation of the pre-rendered intro sequence from Final Fantasy VII...which looked even better than the original).
Hmmm...I wonder if this will be playable on the floor at E3 tomorrow. As I recall, GT2000 (GT3) was playable at the first E3 for PS2.
I have no idea about the price point...a device with a Gigabit Ethernet Hub, Wi-Fi, AND Bluetooth access, SD/CF/Memory Stick reading, 6 USB2.0 ports, dual HDMI ports, and BluRay playback capability surely won't come cheap. Oh, and it plays games too!