I think the final decision on the main game engine has been decided, (Ogre, there havnt really been many others that offer the graphical support and abilities of it).
I agree on the entity system, seeing as this will be coded by us, anything will be possible at the end of the day.
When it comes to physics, i think we should concider this from the start rather than later, This way, we wont have to concider doing player animations before physics are implemented
On your last comment, once we see a couple of players running around in a room, we will be making serious progress