I don't understand what they got basing off the Source engine. Maybe it made sense when they started 6 years ago - to allow using Hammer and such. But at this point they've made their own editor, networking, scene system... why is it still attached to a giant legacy codebase.

Didn't they start using Unreal Engine for S&box, then pivoted? Something must have been better for them on the Source side.

It's Source 2, its not legacy

Source2 is the giant legacy codebase I was referring to.

I mean, it is being updated regularly behind the scenes, it's used by Dota 2, CS2 and deadlock.

If you follow the "leaks" space a bit, you'll know that they are working on some kind of new game, and that new engine features that end up in deadlock for example are developed because of this project.