I agree that there'd need to be a new engine to warrant a FFH3. It's about as full-featured and rich as it can be made now. An FF3 would need a reason to exist and the CivIV engine doesn't have any more to offer that the team isn't taking advantage of already. As it is, even if they did jury-rig some new mechanic or feature, the processing overhead would probably be tremendous. My box, rather an older system, is running at its limit trying to keep up with it as it is.

Shelling out to explorable dungeons, making a more complex hero system, MORE events? Sheesh... the mind boggles at how the thing is able to run now much less with an addition of extra features to warrant a new version release tag.
I'm looking forward to the day Kael & Co. finally release the last FFH2 patch, sit back and declare it "Finished." I think that's pretty close as, from what I can see, they're concentrating on mopping up a few bugs and making tweaks now. I'm sure it's a lot easier with the feedback from fans on the site than having the computer AI itself to death, over and over, generating reams of error-reports.
I can understand Kael not wanting to tackle a sequel, even should the chance arise. To be honest, why chance it? FFH2 will go down in history as being one of the greatest game fan-mods ever. The only reason it isn't as famous as Counter-Strike is the CivIV audience tends to be a bit more reserved than the FPS crowd.

Half-life was, after all... Half-Life, which is also one of the greatest franchises out there.
But, with FFH2, Kael has, as he has said, brought a game to life that HE wanted to play. That's quite an achievement. Along the way, he brainwashed a large following of fans to love it just as much as he does.

That's something to be proud of, hang on the wall, sit back and toast a beer to and then, move on to other things.
Now, making a crossover FFH2 mod for another platform (like Total War.. hint hint) would be excellent. But, for now, CIVBTSFFH2.. is good enough for me.