I think it's real time. If you look at the best the GameCube has to offer in terms of visuals, like RE4, Rogue Leader, Wind Waker, the water from Mario Sunshine, etc, and you double that, you have a pretty impressive machine. The you look at the graphics of Nintendo's in-house games that they've actually SHOWN, like Mario Galaxy and Smash Bros Brawl, why is it so hard to believe that the games will look like this? Mario Galaxy has like, NO polygon edges visable, and the lighting is just insane. Smash Brawl has supremely high poly modles with insane texture detail. Even the Wii Sports titles, while simple graphically, have NO polygon edges, they're all smooth as renders.
Also, seeing as this game has four Pokemon and two trainers contained in a small battle area, there's really no reason for it to not look that good. They aren't rendering an entire world.
Edit: I mean, you aren't going to see MGS4 on the Wii. But Nintendo has never strived for that look. There will be very vibrantly colored, CG-ish looking games, though. Mario from Mario Galaxy finally looks like his 3D renders from Mario 64. Hell, with the lighting effects they have going on, I'd say he looks better.