Kenshi - Heard of it?

[WindexGlow]

400 square km of playground sounds nice in theory but in practice it might be a developers nightmare. You'll require alot of artists to fill all that space with props.

The game takes place on a dry-ish island, hence the color of the ground. There aren't going to be any trees, and rocks are too difficult to make. Building wise that also isn't too much of a problem - it takes me about 6 hours to model/uv, texture, and have collisions on a proper building if I put my mind to it. And I'm constantly getting faster at it, too.

If you want it to be done in the near future that is.
Tthats what my negative thinking tells me.

Initially, the first versions will be mostly barren. However as time goes on (and it gains more artists) things will become more detailed.

games like Fallout 3 and Mercanaries 2 had teams of over 100 people (and in "Assassin's Creed's" case, about 450) working on one tiny little house per day or something non-descript,

Fallout3's models absolutely fucking suck. I have no clue why a game with that budget and so many people working on it turn out so many subpar models. Those buildings can be done in hours - even less with the method they used (lots of pre-constructed parts fit into a full building)
At the same time, fallout3's environment is hardly destructive.
It must be nice working at bethesda, you get to sit on your ass all day and amaze Todd with how much grudge you can fit onto your building you spent a week putting off.

Since the game world is so big, how powerful computer you need to run the 'complete world' (what do I mean, is that everything you are going to put in are there. Enemies, cities, forests, what ever you are going to put in there) smoothly?

While the engine isn't the greatest (orge3d), the game loads things in when required graphically. While zoomed out like in the demo my fps starting to dip down, players will never be able to zoom out that far in the actual game.
While I don't know what methods he'll do it with, Chris is working on ways to make the world alive when on the other side of the world. Likely this will be done in a turn based manner, and turn into realtime as the player gets close to it.

Also, is it MMORPG or Single Player game?

Single player.

Like icelands, deserts, jungles, islands where you'll have to go with a ship, just some clean grass where's bisons roaming the area, tunnels to explore... Stuff like that. If you have imagination enough, you can fill that world 'easily'.

Icelands: Possibly, that'd be interesting to see.
Deserts: The island is practically one = )
Jungles : Trees don't exist on the island, and many large bushes don't either.
Islands : Yes, there will be some small islands once chris enables the ocean. They aren't too big though.
Tunnels : While I'd love to see some tunnels, it's difficult to do this due to the 3rd person view.