Well, for some time, I was thinking of maybe using the
Sauerbraten engine instead, as it is open source and fully modifiable. I was hesitant to proposed it since we had agreed to work with Source, but if we are going to propose other engines, I think this one could do. Also, one of the engine's programmers worked on the Far Cry engine.
I know the Quake II's code has been released under GPL too, and that could be another alternative.
However, I want to point out one reason I wanted to go with Source was that it came with tools for things like facial animation and scene setup, which does help in telling a story, as well as a pretty good physics engine, which can be nice for certain effects (capes and rag dolls among others) and funny for other things (aforementioned rag dolls).
Rendering-wise, I'm finding myself to be more and more a fan of OpenGL (and you've likely read my insane ramblings about OGL 3) since it is cross-platform, but if we can get DX10 support for those who want it, then more power to them.
So, I guess we should suggest engines we think would work best and vote for which one we go for?