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We have all seen the terrible looking graphics with all the glitchy stuff in the game, however what we must all keep in mind is that this is an open source game and therefore it has the ablility to have awsome graphics. The greaphics of everything depend on the creator of the objects. Here is a movie in-game of a creator that made all cell-shaded objects. It is amazing and the graphics look equal if not better than Legends of Zelda wind Waker, http://www.youtube.com/watch?v=MQPlZGR7hp0
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SL isn't open source. The *client* is, as of a few weeks ago, so it's likely that Linden's horrifying UI will be fixed by multiple third-party releases, better customization in them, etc. But that's not going to fix anything server-side.
The movie you linked to looks okay, I guess, but it's still an SL machima that would have looked much better done with 3D software. It certainly doesn't provide any kind of promise for the future of SL.