The source engine had some really good facial animation when it first came out, but they really went above and beyond in they're latest update to the technology. Whats also really cool about it is that it will be freely available for all mod makers and to every company that licensed the source engine, so we could be seeing amazing looking facial animation in a number of other game.
I can't wait for episode 2, portal, and team fortress 2 to come out, I just hope they don't get delayed any more then they already have.