We're going to blame it on the "pre-alpha" build for now, but the textures on the game looked pretty bad. Hopefully that will get upped during the alpha and beta stages.
Though not playable (a developer was running through the demo the entire time), we did get to see some of what the gameplay will entail: kicking people out of tanks, throwing grenades on pillars and watching them fall, jumping out of a moving car to watch it explode into a bunker, etc. We were impressed by the fludity of transitioning between vehicles, though some clipping on the jeep was noticeable (which, again, we're sure we'll be fixed in the alpha and beta stages).
The Pandemic CEO talked about how they worked closely with the developers of the Havok physics engine. When asked about the struggle between using realistic and ragdoll physics, Goldman noted that "it's about being fun" over being realistic, so long as the physics are system-based and consistent. Goldman also revealed that 130 vehicles were going to be in the final game.
Goldman promised that everything will be destructive, including the trees (though they were not destructible in the build we were shown). In the previous Mercenaries game, trees were given God-like strength.
The inevitable "what about Wii" question poked its head, to which Goldman responded that while Pandemic's games tend to skew older than Wii gamers, they still love the system and are looking into possibly releasing a game for it.
Mercenaries 2 is being slated for a 2007 release on PlayStation 3 and Xbox 360.