So, back to the original topic.
After reading through the Tech Report's article, I have to conclude that the author is pretty ignorant about information theory and computer graphics.
First of all, the quickest way to do fixed tessellation is to use the object's bounding volume's center or projected area-to-polygon-density ratio as the determining factor for when to tessellate. Hence you see the far side of those objects as densely tessellated as the front. When you have enough power to not care, you just don't care, which is probably the case here.
Secondly, does the author know how ANNOYING it is to write code to support punching holes in a water sim? There's a huge amount of border conditions and continuity problems if one assumes holes can occur anywhere. The simplest solution is to just always apply the tessellation to the whole water plane -- which, I'm sure, originally appeared under the city anyway.
And this leads to my third point: does the author even know how difficult the hidden object removal problem is in computer graphics? The usual "if I can't see it, then don't draw it" (which is what the author's statement boils down to) is probably as informative as the statement "physics can't be that hard if I'm living in it!"
In other words, if he can come up with an algorithm that does occlusion culling in O(logN) time, please go write a paper and publish it in SIGGRAPH -- I'd be VERY interested in reading it. And for those of you who think that this is already solved via BSP, KD-tree, BVH, etc, etc.... Well, please go read the literature again. Someone already calculated that these aren't O(logN), but more like O((logN)^6) or something -- but I couldn't find that paper again.
Moral of the story is: "Never attribute to malice that which is adequately explained by stupidity [or time constraints]."