Nitro is building the engine from scratch. I'm no programmer, so he would be able to give you more info on it-but from the little he has done so far it looks sweeeeeeeeeeeeet.
We trying to figure out the technical side right now. How does the character move, how are animations streamed, how does a character turn around, what happens in the inventory windows, how do doors work...i find it quite exciting working out the base mechanics, although I'm sure Nitro disagrees with me!

On the art side, we are nailing down the story and the first area, which will be the 'training' area of the game. We are trying hard to have it make sense in the context of the game, and be as cool as possible.