The Source engine is a 3D game engine developed by Valve Corporation. Its unique features include a large degree of modularity and flexibility, an artist-driven, shader-based renderer, accurate lip sync and facial expression technology, and a powerful, efficient and completely network-enabled physics system.
The Orange Box (TF2) engine is getting very bogged down with the continuous updates to TF2. With the amount of stuff they add with each update, I will not be surprised if they move on this year or the next, because 2.8 GHz dual core users like myself can no longer run the game with efficient and decent performance.
The engine is starting to show it's age if it hasn't been doing so already, mods like Portal Prelude pushed the engine to it's limits and the author had to compromise on the last level of the mod, because of the limit. Many users crash on that final level, myself included, and cannot complete the mod.
However, even with all of it's drawbacks, I still see it as a decent, if not great engine to have. At the same time, I know that Valve can do better and improve things with a completely new engine, even for the rather small amount for resources that it has (compared to other game developers); nothing is perfect, but there is always room for improvement.