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Normal mapping all those tree's would [most likely] create a big slowdown...

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Maybe.. but do you really know? Dont make assumptions about performance unless you have done tests. Games like Farcry and Oblivion for instance use normal mapping on all the tree trunks (not the leaves)...and performance is fine.

There is a such a thing as shader LOD as well, and one can turn off the normal mapping shader at a certain range..

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No doubt you're right about the LOD which is a logical explanation but I think you can't compare the FPS with games on an 'average' pc to a game such as Oblivion on the PS3 by many reasons. If you're refering to Oblivion on PS2, then I agrea with your statement. Just a remark

Cheers

Frazzle