Number one son picked up a copy of Farcry 2 earlier this week. Anyone who doubts the ability of computer games to create a believable world should take a look at this game. Just about everything works as it should and the appearance of the game world is amazing.
I went to a session at GDC earlier this year where they were talking about how they "grew" the scenery programmatically. Rather than having artists who placed each tree and blade of grass they actually wrote code that simulated the way that that everything grows from its starting point. Very impressive.