A very early version of the concept was in development for the original Xbox using UE2; it was probably easier and cheaper to keep their established baseplate and bolt new techniques and technologies onto it than restart it with UE3.
Based on how great the game looks, I can't imagine much remained from an original Xbox tech. Also, Xbox support was pretty much dead by 2004 in my opinion.
I guess it makes sense to stick with UE2.5 if they were really comfortable with the engine. Also, the early days of UE3 seemed like a struggle. I think I'm more curious why did Splinter Cell games stuck with UE2.5 even in 2013. I would have never guessed that was UE2.5 and it looks great considering.
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