Explaining that this was a work-in-progress and it wouldn't be a part of his GDC Keynote the following morning, Sony Computer Entertainment Worldwide Studios President Phil Harrison wanted a way to point at the power that the PlayStation 3 could unlock. At the conclusion of a presentation that unveiled 'Home' and the irrefutably smart LittleBigPlanet, Sony showed us Killzone. It wasn't called 'Killzone 2,' it was just called 'Killzone' and the video footage appeared to be artifacted somehow. It wasn't the clear, crisp HD footage Harrison's presentation had been populated with -- it was almost like an afterthought. It didn't look as good as the fake-footage we saw at E3 2005, but it didn't look bad, either. It was just a half-hearted show of particle effects, bullets ripping through warehouses, tearing apart kitchens and showcasing the rag doll physics in the Killzone engine. If the footage ever surfaces, it'll likely be treated as an 'engine' demonstration, but the first-person perspective, gunplay and action clearly show gameplay in some state.
Sounds a little too discouraging at the moment.
Calling it an "engine demo" means that they are embarrassed to call it in-game footage, IMO. Kind of sad, they've had a lot of time to work on this.

This was one game I was really looking forward to having in my PS3 collection.