Technology changes far too quickly and dramatically to allow significant source code reuse from a project that was started four years ago. So the new engine is being done effectively completely from scratch. I think this is a very key concept, one that is, unfortunately, easy to lose sight of. Typical laundry list of crap, pretty much. The graphics engine's goal will be to provide the best combination of features and performance that allow the game designers to do their jobs effectively.
Games have a start, end, and a lot of the times they have a winner and losers.
A virtual world doesn't really have these definitions. In the future we'll probably see some products that attempt to capture elements of both games and virtual worlds, or we may see companies focus on one or the other aspect. The deluge of next-gen video cards is upon us. This shows once again how much even a 3 month delay can hurt a company. The landscape would be dramatically different today if Banshee had shipped on time or, conversely, if TNT had shipped 9 months late.