I have made this news post in an effort to clear up misconceptions about GoldSource and Source.
GoldSrc is based upon the Quake 1 engine, not the Quake 2 engine.
GoldSource is a heavily modified version of the Quake 1 engine. It has a few lines of code from the Quake 2 engine, to fix bugs, but at it's core, it's the Quake 1 engine. Ken Birdwell from Valve explains it in further detail:
"It is fundamentally just a heavily modified Quake 1 engine. There are about 50 lines of code from the Quake 2 engine, mostly bugs fixes to hard problems that Carmack found and fixed before we ran into them."
At its core, it's a Quake 1 engine. You can tell this by comparing Half-life's map compiling tools with those shipped with Quake1. You'll find very minor differences -- none of them are fundamental. The core rendering is architecturally identical to Quake1, the only "significant" change is removing the fixed palette, making map lighting RGB instead of 8 bit, and converting software rendering to be 16 bit color instead of 8 bit color, which was pretty easy and only required minor code changes. Our skeletal animation system is new, though it was heavily influenced by the existing model rendering code, as were a lot of our updated particle effects, though less so with our beam system. Decals are totally new, our audio system has some major additions to what already existed, and at ship time our networking was almost totally Quake1 / QuakeWorld networking but about a year later Yahn rewrote most of all of it to be very different in design. The most highly changed sections are the game logic; ours being written in C++ and Quake's being in written interpreted "Quake C". Our AI system is very very different from anything in Quake, and there's a lot of other significant architectural changes in the whole server and client implementations, though if you look hard enough you can find a few remnants of some nearly unmodified Quake1 era entities buried in places.
Jay Stelly adds, "We also took PAS from QW and/or Q2 and a couple of other minor routines I can remember (no more than 100-200 lines of code there). There was some feature overlap (as Ken mentions) like game code DLLs and colored lighting, but we developed our own solutions to those independent of Q2."
- Ken Birdwell, Valve
Source is a heavily modified version of GoldSource, with mostly new code. Also has Havok physics (albeit heavily tweaked) incorporated.
It's not based on the "Havok Engine", it has the Havok Physics Engine incorporated in it however.
Hopefully that will help clear up some things for our users.