"People shelling out more for a vid card then for the CPU"
I think both can't be really compared 1:1 as the video card has, for example, lot's of memory on the card etc. However, there's something behind it... in most of today's games, the bottleneck is the video card and not the CPU. There is a reason for this: When you design a game, you want it to be able to run on a lot of PCs, also older ones. You usually have a lot of options for the graphics, so if you have a bad video card, you can tune your settings. But if you have an outdated CPU, there are usually not much, if any, options.
Means the workload of the GPU can be adjusted whereas a CPU always gets the same work to do, whether it's a top-notch or a rather old one. The top CPU's have a lot of power left that could be used for physics. The problem is that physics were not an option. Now they are, means the whole thing gets more scaleable towards the CPU, which is imo a step forward (both for users of older and highend systems).
Well, I don't believe PhysX card will be a hit because they have nearly no use in multiplayer games. It'd be cool if you could destroy something and it burst in hundreds of pieces that you can use again. But all these pieces would need bandwith to be synchronized between clients... which is not really available. Means PhysX cards will only be useful for effects that are not relevant to the gameplay (ragdolls, small stuff, particles etc). Which doesn't make it interesting for me to buy.
Vaarscha
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