My thoughts are this,
I don't know much about the assets in the game, how they are made, or displayed, so I can't say too much on this except is it possible to just overhaul this engine?
What I'm saying is, rather than a complete fresh start, maybe take the existing assets and scale them up, clean up textures, and models, maybe add some polygons with curves?
Getting into that, how much could be accomplished with a texture overhaul? Looking at games like Skyrim and how it looks with various texture packs its not a stretch to say a simple texture overhaul on this engine could do a lot to make it look better.
Maybe some kind of display optimization, i know frame rate drops are expected, what I don't know is how much of the world is living and how often it is living. For example if the overworld map is a living world, constantly being calculated and updated that explains some of the lag in combat. If the game isn't multicore threaded now would be the time to consider putting the chunk of the routine that handles active creatures on its own thread. I know that is a lot of changes to make in code. As someone who programmed in his youth I get how big an undertaking that could be, but it may be more efficient then other game engines at that point.
Honestly, I think a texture overhaul, and maybe a quick look to see what the latest display optimization can be done would be a good start. There is a lot more that can be done with this game engine I suspect, it wouldn't be hard to customize some unimportant things like hair color and length, for characters, add in some new weapons and classes, things like that. Most of the reasons for moving to a new engine are focused around graphics. The question then is, would updating the models, textures, and a quick/semi quick once over of how its being displayed be enough to make an improvement? I think it would be, but I'm not you, I didn't code this, so I don't know what your limitations are.
I do know I'll check in on this and maybe have some new thoughts after, but off the top of my head, how hard would it be to include another variation of Anti Aliasing, or take advantage of newer graphics hardware on the current setup? Howe about FXAA which is much less resource intensive and could provide options? Expanding on new and varied texture?
ON the texture issue. You could add a lot of variety to the levels with a dozen new grass and plant textures, brick textures, and maybe even wood textures for a "mine shaft" type cave/dungeon. Maybe consider doing some pallet swapping for "portals to other realms" using existing textures and models?
Like I said, I coded years back, I'm a big fan of "reuse what you can, and if it aint broke don't fix, but do improve."