Just found this cool video showing a particle-based fluid simulation. The surface reconstruction method has been presented at the SIGGRAPH 2010. The demo is not a real time animation but has been simulated on a 2.4 GHz Intel Core2 Duo CPU + NVIDIA Gelato for the animation rendering.
In this paper we present a novel surface reconstruction method for particle-based fluid simulators such as Smoothed Particle Hydrodynamics. In particle-based simulations, fluid surfaces are usually defined as a level set of an implicit function. We formulate the implicit function as a sum of anisotropic smoothing kernels, and the direction of anisotropy at a particle is determined by performing Principal Component Analysis (PCA) over the neighboring particles. In addition, we perform a smoothing step that re-positions the centers of these smoothing kernels. Since these anisotropic smoothing kernels capture the local particle distributions more accurately, our method has advantages over existing methods in representing smooth surfaces, thin streams and sharp features of fluids. Our method is fast, easy to implement, and our results demonstrate a significant improvement in the quality of reconstructed surfaces as compared to existing methods.
The paper can be downloaded HERE.