People have a short memory.
Valve did update the engine with HDR, which was originally NOT a feature of the Source Engine. They could implement it, and not only they updated their Engine (which almost never happens from other development houses), but they made HDR "theirs", by tweaking the way it's being rendered by GPUs with SM 2.0.
The Source Engine is one of the few others around that can actually be regularly revised/updated.
Usually, when a game is released, it has an engine running it, but other than game-play related patches, the engine is left out over time, and then another version of that engine is made for the sequel, or a pseudo-sequel of that previous title (such as Crysis and Prey).
Valve, on the other hand, created an Engine that can, that has been, and that will be updated over time.
And nothing proves us that the following Episodes will not receive a better graphics-related update other than adding HDR lightning.
Oh, and, 18 months is nothing to develop a game, even if you don't have to create a new engine from scrap.
Take Battlefield 2, for example. That one was under development for two years (approximately), and look how badly it ran when it was first released (history repeats itself with Electronic Arts games anyways, even if they do not entirely develop them for some ungodly reasons). Not to mention that it could have looked much better than it did upon release. The lightning effects are basic, textures are lacking in details, and the engine is a RESOURCES STARVING SLAVE.