Newell's reasoning for episode 3 not materialising came off as rather flimsy to say the least. 'It didn't push anything forward', did episode 1 or 2 push anything forward? I've not played them in well over 10 years but from what I remember they just carried on from Hl2. Alyx played more of a part in assisting you but wasn't anything mind-blowing in terms of making the gameplay so different. Also, why would the third episode need to push anything forward? Would it not make sense to finish episode 3 and then for the next game try to do something new that pushed things forward? The story was incredibly important, but apparently that wasn't enough for them to continue with episode 3.
They've had 17 years of dodging questions relating to either episode 3 or Half-life 3 and this is the answer they came up with?
I really think burnout played a big factor in this, they'd spent 6 years on Hl2, then 3 more years on eps 2 and 2 so its natural that things would feel kind of 'samey'. The devs even say that Left 4 Dead needed more devs on board, so Ep 3 was basically paused, they went to work on that, came back to Ep 3 and thought it needed a new engine etc, then in the docu later said they regretted making that decision and they could have finished it in around 2 years.
And here we are still in limbo, are they going to finish the story? At one point they claimed that the episodes combined were Half-life 3 (then changed their minds on that), so essentially they put out 2/3 of a game.