Actually I just found the smoking gun which shows im right about it. It IS an LOD trick.
I've got a replay of Leon vs Mila and at one specific segmant when Mila is launched into the air and zoomed in on during specator mode, the frame rate absolutely slows to a crawl when trying to pan the camera around her.
So there is definitely LOD trickery going on, or this could never happen. Interestingly nothing really happens with Leon, just further showcasing that they put more detail into the female fighters. (big surprise, right?)
Here's another observation you can make. Look at the background brick wall at the top of lorelei, fully zoomed out. Then zoom in. Looks worse, right? The closer you get to any texture in any game, the worst it looks. That's just the nature of textures. However the OPPOSITE is true when it comes to the fighters in this game. You get closer, they look better instead of worse. Except for the male bodies, which actually do look worse up close. The LOD tricks seem to apply mostly to their faces and not their bodies, though there might be some exceptions. Leon certainly isn't one of them.
So, how do I take this replay and show it to the rest of you as evidence... there's the question... hmmm..