I'm not sure I understand how LOD using 3D textures work. Do you have any further info or links?
Both, ATI and nVidia want higher order surfaces, and both will probably finally adopt to nurbs. But, right now nVidia wants to push everyone to start using higher order surfaces on hardware using the standard polynomial curve surfaces. ATI, on the other hand, is hoping most designers are already using polygonal surfaces compatible truform. So they want polygonal surfaces as input for the card.
Even though the current cards will both have different ways of taking in the 3D data, they will have to tesselate it in some stage. And frankly, I have no Idea how good these tesselation units are.
The problem with the truform method is that, for games coming out in near future (Unreal 2 & Doom 3, afterall these are the games the expensive hardware owners want to play), will have huge amounts of polygons. Doing truform on that will no doubt stress the hardware to max, and performance aint gonna be so good. It should, however, be ok with games prior to that, providing the 3D surface in the game is compatible.
The problem with the polynomial surface approach is that game developers need to make their models in curves rather than polygon models. The only Engine I know to be using curves is Quake 3 in its environment, but not the models. I'm not sure, there may be others. If the tesselation unit is good enough, and the system has enough memory, there is another probable solution. Any curves in the game can be tesselated by the CPU to low poly surfaces for collision detection and then the original curves be sent to the GPU for tesselation into high poly surfaces for display purposes. If, instead, the models are made of polygons and have a conservative polygon count, providing the CPU is powerful enough (about >1GHz), it should be possible to get curves from the polygons without too much of a performance hit. This should allow the original polygon model to be used for collision detection and the curves can be sent to the GPU for eyecandy, I suppose.
The best thing about the curves is that they can be used for scaling, i.e. dependant on your hardware and the required LOD. I do think onboard Collision Detection and some basic physics functions to determine the rebound and recoil level to simulate realistic collisions would be great. I've been ranting about that for ages. May be, we should send lots of emails to the graphics card manufacturers, microsoft and SGI and tell 'em what we gamers want!
<font color=red><i>Tomorrow I will live, the fool does say
today itself's too late; the wise lived yesterday