Yeah, I saw the character they created in the likeness of Famitsu's Editor in Chief: Such accuracy made me drool; I was originally just impressed with the graphically sound gameplay, but this just makes me wait this game so much more. As for the trailer (now that I've given it a look), is it just me, or did Level 5 change the character graphic slightly? The protagonist's face isn't quite the same from what I remembered from the TGS'06 Shirokishi trailer. =\ Shame, I rather liked how he looked in the first one--even if this new revised one has more realism in the face.
It looks to be a face/hair recognition system--at least I'd hope it'd be. The accuracy in the hair is just too uncanny for it to be from a presetted list of choices.