I saw that 3d proof of concept before I was a member of the forums here
who did it, quazi?
anyway, it's ridiculous how much it looks like xenogears for the psx, which was a great game btw.
Im pretty sure the demo uses 3d boxes, so that means in order to use them there would have to be a few additions to that object, like the ability to find a certain face, and the ability to change textures on the fly, etc.
the demo's not isometric though, it's 3d, other than the mario
you could do isometric completely without 3d boxes, like if you wanted to make a game like SuperMarioRpg
<img src="http://www.serone.org/blog/gallery/1/super_mario_rpg_vcmm_lg.jpg">
there's no 3d in there, it's all in the way you draw the tiles, which seems very difficult to do well, on a side note.
or something like this
<img src="http://www.sg.hu/kep/2000_12/zeus_bemutato_01.jpg">
just really well made tiles, but I do think the staggered grid thing would help alot
I think game maker had that option