You know, I don't know where exactly I think I heard that. I could be making it up. I went looking for the exact quote and couldn't turn it up. I was pretty certain it was in that monumental anniversary podcast with Staten, but it's too lengthy for me to weed through at work. I seem to recall something along the lines of, "we passes the engine to them a while ago. I'd say they are about half way through the development process." Paraphrasing of course.
Even just on a speculative basis though, seeing as how it's Wingnut's first title, and seeing as how they're working so closely with Bungie and Microsoft on a Halo franchise title, I can't imagine they'd use any other engine. Makes sense that they would reduce the technical development time by handing them the completed engine and letting them concentrate on the content side of things, right?
Back to the idea of epic content versus episodic, I don't find them mutually exclusive. In fact, I think it would be much easier for them to do something really creative and inventive with a series of short titles then it would be for them to work that into a ten hour title.