My best guess is that it's all in-game, but of course there are a handful of scripted would-be dynamic sequences. For the demo, they were all scripted to happen. As a dynamic action element, it was obvious that when the guy hacked the traffic light, it spawned a bunch of cars right off screen. You can see a headlight appear suddenly in the back/left side.
I do think that the context sensitive stuff is all dynamic, it's just for this demo, they are possibly the only ones this done and polished, and so they were known events, whereas in the real game, there would be multiple possible dynamic events happening, varying scenarios within just a car and what can happen to one.
As for the graphics, they seem to be way beyond what we can do now, so they probably have a super "future" rig they ran it on. They easily could have recorded their own footage and put in post process effects too though, especially since most stage demos are just videos.
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