Î
Saw this technique in other Crytek-games, too (Crysis: Warhead for example), mostly used for vegetation.
It is a really good idea and there's almost no visible difference between actual polygons and a sprite.

EDIT: just noticed that if you're animating a high number of models it's going to be really performance eating.
Think about disabling the animations for distant models - or, as ratchet suggested, use (not animated) sprites