Just think of each building built up from pixels, and when your destroy it you delete each pixel block and replace with a dust anim and rubble particle explosion.
Most of what you need for it could be edited from the Online DB resources or DarkMatter 1/2.
You could sneakily nick from games like Quake2/3 or such too
as no one plans to retail any of this, don't see it as a major problem for those with no artistic talent.
As for a House of the Dead (god i love Typing of the Dead, was an awesome concept), yeah that's possible with the Dark Matter models as they're all limbed, just need to edit the textures a bit if you want more convincing zombies.
I know it's all a pain about graphics, but currently as people seem to actually be bitching about. Graphics actually make up the exact same percentage as the rest of the game; This means it *cannot* win on graphics alone.
So no need to really worry about it imo, unless those bitching about graphics get thier way.
Just try to make something that is playable and fun. ^_^
Work on in-depth sprusing once the game is complete.