It's fairly well done, but it's made of photographs, not 3D. I'd expect a site-full of geeks to be able to tell... You can easily spot that the distortion of the hair and stuff involves scaling of textures, not rendering.
What amazes me is how efficient the rendering is. It uses flash for rendering and is running fast on my netbook. If this could be taken into 3D games, it would make the game characters much more realistic/scary.
Did a quick search but I can't find the article.
I have to say though that bad looking characters in games are usually fault of the artist, not the underlying technology.
Not to say it would be worth the effort, but there are niche use-cases.
Also, there were other swfs like this from way back on ol feanor's directory: http://www.feanor.net/z0r/shock/