As a game artist, I can guarantee you that the first U4 demo was running real-time. It's just the nature of showing something so early, when all you have to do is run one scene with one character, with one settup, with a locked camera, with no gameplay, no ai systems, you tend to get a better picture. Plus most artists work higher and optimize further as time goes on, you have to fit everything under 50gigs and all streaming at the same time.
Plus even small lighting changes can dramatically change the look of a scene/character. That super higher contrast, dramatic, dark look of the initial demo just wouldnt work well for a full level.