I haven't read it first hand, but I heard they were starting anew. I did read that they were trying to "stay true" to eq1. And that the graphics would be scalable. Do you have links to screenshots? I've only seen concept art.
I can't imagine they would reuse the EQ1 engine. But, maybe it works and all the junk they added makes it dysfunctional. I dunno, I just hope they start over.
I bet they'll release the movie and the game close together. The movie had better not be lame. I want something Shannara/LotR style.