It could well be that Larrabee can Ray Trace outstandingly well, but Intel isn't going to push it in that area, since what it really needs is credibility!
No, it will be marketed as a DX11 / OGL3 GPU with massive parallel processing potential for Physics, Folding etc. That is what will sell it. Once it has some acceptance, then you'll see more of the 'Oh, did we mention it can raytrace really well.'
There are some seriously good RT engines out at the moment. Arauna is a prime example. With only 4-Wide SIMD and two mid range cores it can chuck out about 4-7 FPS. Doesn't sound like much, but considering that it is doing all the texturing, filtering, tracing, HDR, shadows, reflections, refractions in software. It even then needs to upload the frame to the GPU to display it across the bus!
If Arauna were ported to Larrabee, with say 16 cores, having 16-Wide SIMD and texture/filter units (In the region or 20x - 40x faster than software could do it), with decent cache and local frame buffer, we could be looking at upward of 300 FPS at a much higher quality.
Arauna uses BVH which is a lot easier to compile (you can just throw triangle soup at it), and which is much easier to change on the fly. If what Intel is proposing pans out, there will finally be some hardware that can do RT properly. Also I expect that the Offline rendering folks such as 3DStudio, Maya, Lightwave etc. will all whip out plugins that make their scenes render that much faster using it, even if not interactively.
Intel's charts and graphs showed diminishing returns over 32 cores
Meanwhile NVidia can keep adding stream processors. You can run 8 GPUs in parallel.
True, but I read that as diminishing returns on a single board. Multiple cards with their own bandwidth would likely continue to scale linearly, plus I think this was in regard to their rasteriser, rather than other techniques. Time will tell I suppose.