Gabe Newell has said there is a good reason that they can’t talk about progress for Episode Three and I think it’s because they are working on a new Source engine, or at least a huge update for the current version.
There’s only so much tweaking you can do before you have to start afresh; it’s the same with hardware. Some changes can’t be incremental.
Now, obviously I could be completely wrong, but if I am not then waiting for a new engine is cool with me.
It seems to me that in many ways Source is behind CryEngine3 and Unreal Engine3, at least in the perception of some. There’s no doubt that the support Valve offers is fantastic but would the use of Source be so popular if it wasn’t tied to Steam?
The question is would you be happy to wait for Episode Three, simply because it could be on a new engine?