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I thought the sprites were 3D models in AO and AE.
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Nope, this is one of the amazing things they did. coming form a movie/CGI background they used that to their advantage.
The limitation of hardware then (PS1) was you couldn't do lots of rendering/lighting/shaddowing etc so to get around this they used 3d programs to render out sprites. then as you move its a 2d game swapping sprites.
Now for the 3d transitions within the game, they are just videos that play over the whole screen. sometimes to cover the game loading.
Its a great way to have better looking visuals than you can get by doing real time rendering.
As for Abe HD, JAW might be looking at going down a 2.5D route. (Bionic commando, Shadow Complex, Cave Stroy 3D) but its all dependent on the engine. maybe re-rendering at a higher resolution would be the way to go and think about a 3d approach to New games, we'll see!