"So what do you wanna know about that's not Half-Life 3?" Valve president Gabe Newell, laughing, asks a crowd of 4chan members who recently visited the Washington-based studio. The group's first question, however, was just as worthwhile. What's up with that supposed new game engine? "We've been working on new engine stuff for awhile," Newell says. It's tough to hear what he says next, but it sounds like, "We'll probably just roll it out in one of our games" (subtitles of the video read: "We've just been waiting for a game to roll it out with"). Thankfully, a followup question directly addresses Newell's ambiguity. "Is it going to be more than just an update to Source [Valve's first game engine]? Is it an entirely new engine?" the 4chan member asks, which Newell directly (and concisely) responds to with a simple, "Yeah." See the full back-and-forth beyond the break.
Newell doesn't directly refer to the in-development engine as "Source Engine 2," so it's possible (albeit unlikely) that he's referring to a separate engine altogether, or (even more unlikely) Valve has more than one game engine being created. We've yet to hear back from Valve for clarification.
Oh, and if you want an update on Half-Life 3, Newell re-confirms that "Ricochet 2" is being worked on, so take that as you will.