ps3 doesn't use a mircosoft api (i.e. directx). It uses opengl es with some proprietary shader extensions.

The ps3 lacks the capability of displaying directx11 quality graphics.

ironically, better versions of opengl are available on windows/pc hardware.

It is odd to me that they will develop the game in directx9, a dated api from 2002. Why not just develop it in opengl is they are setting the bar that low? At least if they develop it in opengl, then it seems like it would likely take less work to port between ps3 and pc, where as doing directx9 for windows and psgl(opengl-es+ext) would probably take more work to port.

At any rate, as long as this game is tied to the ps3, I wouldn't expect too much in the graphics department, as I can't imagine them creating separate assets and extensive code for each platform on an ongoing basis. One of the key reasons some games are popular is accessibility. They have lower system requirements, so you end up with a greater potential customer base.

I expect they will be generally reducing the graphics quality in version 2.0 while trying to make the perception that it looks better by actually using things like shadows(!) outside of npc(s) and items that are added as npc(s) (think christmas tree)

That would be in line with catering to a broader audience while reducing system requirements and making pc version graphics closer to what the ps3 can handle.