Yep. I played the short Lost Coast episode right after playing the original HL2 on release. The graphics do look great and it was really a technical demo to show the new HDR lighting effect available to new graphics cards at the time. The HDR effects definitely improved the visuals, and like you said the water physics are cool too, although those are present in the full game too.

Quite shocking to see that the Lost Coast was released 3 years ago now!