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There is extremely strong evidence to point to one theory about this Half-Life 2 source (thanks AM10k and MegaMan for help)
Theory:
This IS half-life 2, but not the half life 2 you are thinking about. After the successful release of Half-life 1 valve began work on the sequel. This sequel was to build on the popularity of half-life to earn valve big $$$. So they started developing half-life 2, they built it directly on top of the half-life one game. But that didn't work out Half-Life's engine simply couldn't cut it to what they wanted to do.. oh no! Lets start again
From IGN
Theory:
This IS half-life 2, but not the half life 2 you are thinking about. After the successful release of Half-life 1 valve began work on the sequel. This sequel was to build on the popularity of half-life to earn valve big $$$. So they started developing half-life 2, they built it directly on top of the half-life one game. But that didn't work out Half-Life's engine simply couldn't cut it to what they wanted to do.. oh no! Lets start again
From IGN
It all started with the engine. Right after the original Half-Life shipped, a group of guys from the development team went off in to a secret area and began working on the new technology. The new engine, called Source, was built entirely from scratch specifically for Half-Life 2. But though it was built from scratch, it took its direction from the limitations of the first game's engine. "There was a bunch of stuff at the end of Half Life 1 that got cut, right? Things that people wanted to do. That's always the natural starting point. We had all these great ideas and things we had in mind that we weren't able to do with the last tech."
Wow how interesting so that points out that actually there where two engines for half-life 2 developed and one dropped Shocking isn't it, now all of you run to your half-life 2 source and look to see if the directx SDK's actually supplied where used AT ALL?! No ... ahh!But though the convenience and flexibility of the engine are high points, it's gameplay that provides direction for the engine. A brand new physics engine enhances the vitality and believability of the game world, while a new face-acting technology helps the game's characters seem more lifelike. Beyond these two key additions, the new engine is capable of rendering some of the most lifelike graphics we've seen yet.