I used to wonder the same thing, lol, graphics was never SL's strong point.  It definitely has shadows though, even dynamic self-shadows, though they probably left those off due to lag while shooting their Machinima.  To be fair though, even quite a few years back I saw some pretty damn amazing stuff done in SL, I'm not kidding, especially some of the Gothic and Horror sims, there are some very talented creators who use it, know how to get the best out of it etc.

I agree, the tails look good, possibly a script that monitors the hip, SL has a massive 'Marketplace' that sells all sorts of scripts for the avatars.