Our current idea is to connect different levels to each other through specific "gates" where we can stream out the level you were just in and stream in the level you're going to. In those gates, there is gameplay, it's just not so diverse as a level is.
So you get the idea of a seamless world whereas in actuality it is actually a collection of levels, and we have "in-between" levels" to offload the burden of doing heavy streaming (which as I'm sure you noticed in the more recent next-gen games is not everything it's cracked up to be <img src="/ubbthreads/images/graemlins/winkwink.gif" alt="" /> )
On the topic - Oblivion/NWN/Baldur's Gate load in the interior of houses as different levels. Gothic doesn't. Both methods have advantages and disadvantages - which do you prefer ?