IIRC it was done with a vertex shader that reacts to the player's collision mesh. Similar to the InteractiveFoliageActor in Unreal: http://udn.epicgames.com/Three/InteractiveFoliageActor.html
IIRC, detail maps were used in the first Unreal game, back in 1998. Some more stuff here: http://wiki.polycount.com/DetailMap The WoW billboard trick is very cool!
First of all: Thank you NEOX for the solution. I added it to the article and made some additional example pictures. Zwebbie Then you should checkout Halflife2. It uses detail maps also very much. And of course Unreal Tournament 3. And to your suggestion: no, it's done like Neox said. Checkout the added explanation in my…