All cinematic videos (like the one for L4D2) are rendered in Source + they are working on updating the rendering system and implementing support for DirectX 10/11.
There is no need for a new engine as long as all features they need can be implemented into the modular kernel. And that’s a method I totally support!
The topic graphics is also totally over-hyped in my opinion.
HL2 is and will always be a beautiful game. I don’t need realism-like graphics at all.