I shall discuss a new series of hydrodynamical simulations that follow the formation of galaxies, from high-redshift until the present epoch, in the LambdaCDM cosmogony. A novel feature is that they simulate spherical volumes, ~20 Mpc/h in radius and with differing overdensities, extracted from the Millennium Simulation. They hence trace the evolution of all structures expected within the volumes probed by low-redshift galaxy surveys, whilst retaining sufficient detail to probe dwarf galaxies and resolve the formation of proto-galaxies at high-redshift. The simulations include treatments of gas cooling, photoheating from an ionising background, star formation, supernova feedback and chemodynamics. I shall present the initial results, focussing on environmental variation in the volume-averaged star formation rate and the formation of compact massive galaxies. I shall also discuss how hydrodynamical simulations are a useful tool for identifying weaknesses in analytic descriptions of galaxy formation, in particular demonstrating how GIMIC provides a simple resolution to the `X-ray halo problem', which has been cited as a challenge to the standard picture of galaxy formation.