Recently, some of our work was presented at the Blender 2008 Conference in Amsterdam. (Warning: the talk is highly technical, since it's intended for other Blender users and Developers.)

Mike Pan and Dalai Felinto worked over the summer to add GLSL animation, bounding walls, and other improvements to the OceanViz software which we created here last fall.

"Blender" is free/open source 3D modeling and animation software which also contains a very capable game engine.
The game engine has recently been improved and now handles node-based shaders and dynamic lighting and shadow.

 Get the full video here.