Water, dust, cloth and hair physics are all still in the uncanny valley...not to take away from the tremendous progress with triangles and lighting!

I thought the scarf movement looked great.

Not to me. It was too stiff which caused it to move in some unnatural ways.

It didn’t seem to reflect well the way cloth moves when sliding across another piece of cloth. When she was climbing, I’d expect the scarf to sort of wrinkle/bunch up, then fall to her side, not just cleanly slide off.

However I could see them adjusting the physics for the demo to ensure the cloth actually fell by her side so we could see it swaying as she climbed.

Really? To me it felt like it was in the uncanny valley for cloth. When climbing it seemed to cling to at certain distance from the body at all times, like it had a certain range it could swing to/from the body but could not exceed.

Bingo. Look at the way her tied hair bounces when she is climbing. Totally unnatural. Also, the body movements - the speed of turning is too uniform/fluid; there are variations of speed within a single turn we do.

Though I was totally blown away by the detail of the rock texture and very realistic lighting.

It's not so much that the water looked off (which it did compared to the rock), it's that the character was completely unencumbered by the water. If you're walking through ankle-deep water, your feet are going to slow down as they drag through the water and go faster through air, and the character's stride didn't account for the increased drag. It'd be the same as if you put that super-realistic character in a stylized game like Hollow Knight without adapting her animation to 15fps like the rest of the characters are.

The animation was great, but the graphics were much better, and one can't help but notice the quality difference even though both are awesome works of art.

That and the climbing scene. As a climber there's no way to do that in those boots! Or, given the apparent story context, to do it that fast: nearly speed-climbing for an on-sight just doesn't look right. And her body movement for it was all wrong.

Yes but isn't that obvious? Based on the quick talk at the start I didn't go into this video expecting literally everything to be photo realistic. The developers were quite clear that the two big things they wanted to demo were:

1. Better real-time global illumination

2. Ultra high poly models

Then they also briefly focused on a few other features, mostly ones that they already shipped. The Lara Croft adventure scenario was an excellent choice to let them show their new work off in a context with many sudden lighting changes, naturalistic assets, arbitrary changes in scene geometry, huge changes in horizon distance and other things that have historically been difficult for real time engines due to their reliance on very CPU intensive pre-processing passes to build static data structures.

From what I've seen the look of water is usually not provided by the engine itself. Water is really hard to make look good and a lot of it depends on the specific needs of a game.

I noticed this too. They briefly showed it because it's probably still being worked on (guess). The flow didn't look very natural at all.

The water actually seemed to be acting like a smaller amount of water would, as if the character were six inches tall and walking through a tiny puddle or something.