When we started Lithtech and Shogo, there actually were no licensable (fully-3D) engines out there that we were aware of. There was a lot of hype about the up and coming engines, but we strongly felt that we would be better off writing our own. We were also very excited about Direct3D, which was very new and noone was using at the time. At this point, we're glad we have our own engine, but I doubt we would do it again if we had to. There were some intense hardships the whole company went through to get Lithtech to a licensable state.
Lithtech started as the renderer for a game we were trying to get published called Metaltek. It was written to be reusable between Monolith games. After a couple months of development, we decided that so much of it was reusable between games that we really should be developing it as a licensable technology. The original name, DirectEngine, was used since the engine was really showcasing the DirectX technologies.
After a year of development, we had most of the essentials - an editor, physics, rendering, sound, and networking. We also were using a scripting language called DScript. The engine still needed a LOT of optimization and finishing work at this point (2 years worth!)
At this point, we began development of Blood2 on the same engine. When Blood2 started, it became apparent that we were wasting our time with a scripting language and chose to drop DScript in favor of compiled DLLs.
Shortly after, we made the first publicly available DirectEngine demo. This generated a lot of interest and really showed us that people loved the way the engine was setup.
Sometime after that, we bought Shogo and DirectEngine from Microsoft, and changed the engine's name to Lithtech.
Up until Shogo shipped (about 6 or 7 months ago), we were testing various video cards, optimizing, bug fixing, adding features to DEdit, making updates to the demo, etc.
After Shogo shipped, we added some features to the current version of the engine (Lithtech 1.5) like exporters for Maya, Lightwave, SoftImage, and 3DSMAX, Miles Sound System support with hardware 3D sound, higher-resolution shadows, and background loading of models.
We've been adding a slew of features for Lithtech2. I don't want to give much away before the back room demo at E3 but here are a few items:
Multiple textures per model
32-bit screen and textures
SoftImage terrains (these terrains look WAY better than the ones in Shogo)
Improved model lighting (lighting based on radius and direction from the lights placed in the level)
Also, DEdit is getting a huge upgrade. It feels like a whole different app at this point.