The main reason for the graphics downgrade going from 1.0 to 2.0 was because of accessibility; 1.0 at the time required a powerhouse of a PC to get going and that ultimately cuts into how many people can actually play your game. Of course, the fact that the original 1.0 team also wanted it on PS3 was.... I have no idea how they would've done that, but the visual 2.0 downgrade was the only real way to have a PS3 version that seemed viable. But still, the main reason wasn't just consoles, but also weaker PCs at the time.
It's also worth noting that 1.0, while it had higher polygon characters and objects, also didn't have proper lighting and shadows. There's a video from the Speakers Network youtube channel that goes over the major graphical differences in 1.0, and it shows just how poor the lighting actually was then; light sources weren't proper light sources, night-time amounted to a "blue tint" on the screen, shadows weren't really cast from those light sources, bloom was overused in places, etc. 1.0 was a buggy, unoptimized mess and even the supposed better graphics were a victim of that mess. The main thing it had over 2.0 was texture and polygon count, maybe a shader or two. I'll see if I can find the video at some point and edit the post with it.
Edit: found the video https://youtu.be/CJ9CmxaQ3q8?si=MhVQ9Msas5yrPVcl&t=464


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but if you look at the max vs min on this game it's not a huge difference, vs. a game like RIFT which allows you to really make it look like crap. This game could use some much lower settings. There was no reason to throw out all those beautiful models they had in the original game. Let those with high end machines see those, while others would have to use lower settings.

