Epic Games, creators of the hugely successful Unreal Tournament were showing off their Unreal Engine 3 at GDC. And according to the folks at Joystiq, it was extremely pretty and worth getting excited about!

Apart from the Unreal Engine, Epic also showed off Kismet, a middleware system for game developers. It's an advanced scripting system which allowed them to create gameplay elements in a GUI which strongly resembled a flowchart. They claim that this middleware system will prevent the budgets of next-gen projects using their engine from jumping 200-300%, instead citing a more reasonable 50%.

Basically, it simplifies the core design elements, reducing time and resulting in enhanced creativity.
We can already see the modding community lapping up these tools and releasing great stuff.
They showed the Engine running on a high end Dell Renegade and a PS3 dev kit, both looking very pretty, in spite of the fact that the PS3 version wasn't using all of the horsepower available, and using Unreal Tournament 2004 textures in some places.