Why the world would they scrap their engine, when they have been working towards it for years and invested millions of dollars into? The engine is more than fine. No way in hell would any company actual rebuild their engine line by line, it would takes years to do so and would make zero sense. The biggest problem regarding Live has been their animation quality and how they transition from one another. Animation blending is a difficult aspect in gaming, not only choosing the right state to transition to but blending it as well can be difficult to do. For animation quality, they can have a more rigorous approach to it by phasing out any animation that was captured past a certain number years ago and making sure they got good capture footage.
I know a lot of users like to say just capture day and night and add thousands of new animations, but this comes at a huge cost to the animators. Now for ever new animation you just added, you have to make sure it is correctly rigged for the player, and on top of that, if you make any changes to the players rig or model, you have to go back and re-animate each animation. That is a lot of busy work and only grows with more animations.
Some animation need to be scraped period, but in my opinion, the biggest issue with Live 14, 15, and 16 animations were transitions to the correct animation relative to speed or velocity of the player, to many times does a player do one move and quickly/jumps to another animation were the following animation is either (speed up or speed down) in comparison to the previous animation(Causes sliding, herky jerky movement and so on). That needs to be addressed, and that's something that can be fixed with time and man-power, not by re-writing the engine.
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