Nice question Jairone, i hope they will use advanced physical techniques.
Hmm given the scope of their game i would assume that they'd need to write their own physics system nearly from scratch. they even stated in one of their dev journals that they are constantly tweaking the physics and animations such that you feel "connected/rooted" to the ground.
as such i think that it is fairly safe to say that we are looking at a whole new physics system especially given the level of intractability and types of combat mentioned.
for things like nvidia hair works, it may be likely, however they may also opt to write their own system as well.
SBS has partnered with Improbable, who've developed a cloud computing technology that allows for massive scale tracking and applied physics. From what I've gathered this means that huge numbers of objects can be simulated and tracked on the server at once. Obviously there are client restraints to consider, but it should allow for some pretty impressive persistent simulation.
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