Best Game Engine for destructible terrain?

I haven't used many engines yet, but Unity3D is very capable of letting you recreate specific objects (or tiles, if you'll have it that way). They call them 'prefabs' and each one is an object with all of its scripts, textures, mesh, etc. in one file that you can repeatedly create and add to the game scene. If you edit the prefab, every instance of it that's already been placed in a game environment will automatically update with it, so you only have to make the changes once.

Another good thing is, if you had a script that had all of the functionality of tiles in it, for example letting the player pick them up, break them, and throw them, then you could attach that script to each tile prefab and in the future, you'd only have to edit the script once to have the changes take place on all tiles, both different kinds of tiles and tiles that have been placed in your environment already. This feature makes using the same code across multiple objects very easy and hassle-free.

I've been using Unity3D lately and it seems very capable to me. It also has some great functions available for scripting, plus it allows you to test your game within the editor with the click of a button.

In a lot of ways I like Unity, but as far as I know destructible terrain would have to be "hand rolled", the built-in terrain doesn't have any destructibility. You could take the approach GHMP suggested. If you wanted a deep level of destructibility you may need to create your own voxel-based solution, so if someone digs/blows up something deep enough you know what's underneath. The physics may get tricky too, I don't know if the physics engine would handle the kind of fine-grained physics to allow a cliff to collapse if you dig into the base of it too much. I think you'd need to do some fakery instead of expecting the built-in physics engine to perform physics for hundreds of thousands of voxels of dirt. ;)

I feel using UDK's fracture tool is still your best option.. Unity doesn't support any fracture tools out of the box. Generally have a fixed terrain and all destructible objects on top of it.. cliffs and smaller terrains on top of main terrain that can be broken down...

minecraft.

Sorry, I guess I was thinking of Minecraft, where every tile is noticeable and block-y, which I think wouldn't be overly difficult to handle with Unity. It's true that the terrains in Unity are mostly non-interactive at playtime, though I was thinking more of a bunch of squares with textures like in Minecraft.

I found something that might work in Unity :-) I will be sure to let you guys know how well it works after I test it tomorrow. And thanks for all the feedback guys! I really appreciate it :-)

Glad to hear someone's working on destructible geometry. I think it's a woefully underused and -researched type of technology considering its fun and immersion potential. We should have had AAA FPSs with good/decent destructible terrain ages ago, not just tens of games competing on who has the most realistic pimple shader.

Well, the tool I posted earlier is $100 and didn't work out too well for what i'm trying to do, so I am now going to try UDK's fracture tool as Mr. Vfor Vikram suggested. I will keep you guys posted on how it works out, if it works out nicely I might post a tutorial on how to do it easily. :-)

Okay, so the UDK fracture tool works nicely, but one issue...When the dirt breaks apart it leaves boulders, etc...so it is very hard to actually navigate through tunnels built with it. Anyone have any ideas?