According to this, Valve plans on peddling the 2004 engine for some time yet still.
Speaking in a series of interviews with industry magazine Develop, the head of Valve explained that they believed it was better to continually overhaul, polish and fix the existing Source engine than it was to try and rewrite it from the ground up. Valve has "more people than ever" working on the Source engine, claimed Newell, saying that the "incremental update model worked really well" for the company.
Newell also added that he thought it would be foolish for Valve to try and go head-to-head with companies like Epic, saying that they didn't want to go out there and try to "muscle in" on Unreal's territory. "Y’know, we’re happy if people want to use our tools. We’re also super happy if people want to use Unreal Engine," said Newell. "We’ve worked hard with the guys at Epic Games to integrate Steamworks into Unreal Engine, which we think will be a great solution."