There's no doubt Vice City is going to need one hell of an engine under the hood to make it purr softly. Rockstar North think they've got it, but from here on it's all up to the consumers to decide.
The game engine from GTA3 is being used for GTA: Vice City. However the system has been tweaked so much you can hardly recognise it. The first main step to being able to have much more detail and functionailty in the game was for the developers to realise what they were doing wrong.
The game is now drawing only what the player can see on his screen. It is not figuring out how it should display that building around the corner, but it will concentrate on what's in front of you and leave the things that are not visible to you undrawn. It's called the "real-time occlusion system" and it's given the developers a lot more working space.
Indoor locations are now also included in the game, and this being one of the main new features of the game, it had to be done right. As you can evidently see from the screenshots, the indoor locations are very complex (nothing like GTA3's ammu-nation). Indoor locations include more detail than you would see on the street, and they are in multiple levels. There are many different kinds of indoor locations you can visit, ranging from laundromats to night clubs. Each of them will have unique conditions, and you'll even be able to look out of the windows to see the life on the streets.
The improved graphics engine has also given the developers freedom to make everything you see much more complex. The game is going to show you many more pedestrians and vehicles at the same time and all of these now have higher polygon counts.
Special effects such as remarkable sunsets and raindrops on the screen have also been fit in the game, providing for a remarkable experience.