LBP is one of, if not the most advanced looking game in terms of lighting and shaders (I can't at least think of any other game that uses global illumination in realtime), but I'm wary of comparing it's animation with 'real' 3D games. It's true though, LBP makes an impressive blend of physics based and keyframed animation, but it's also possible that it's easier to do that in 2D plane.
Regardless of that, it's very impressive I agree, the possibilities with animation in LBP seem endless, stuff like being able to just jump and start running on that cog, or interact with anything in just the way you expect you should be able to, make it look really impressive. In that way it looks like a much more advanced version of that one man developed game I wish we would hear more about. The one that was all dark, and had a boy as a main character. I remember thinking how "next gen" that looked despite relatively simplistic visuals.