Uh, nice to get such positive feedback.
Ganderoleg, now I know what you mean by level-frame ... I had no idea what that meant before, sorry about that.
About my demo:
-The Problem with the isometric view is that mutliple lanes (in y-direction) and this sort of view won't work together, because a movement away or towards the screen wouldn't be seen. And prerendered environments don't work at all when the view's 3d and the camera can move. It would also be much harder to set up the level geometry and combine it with the rendered images.

George, how about this: You enter a huge castle, and in it you have to find your brother. You can enter rooms at will (doors all over the castle level), but some will be locked or hidden at first. Every door leads to a level; in it you find something (a Piece of a letter from your brother telling you how to get to the next level/door/stage - just like your gem, except that it's a letter). The fun thing about this would be: the castle level would be explorable (though 2d movement only and sidescrolling). This would go back to Superku's original design doc: "explorable", while the linear levels behind each door would be easier to program than an entirely open world would be.
The main castle level could also hold merchants/npcs who the player can interact with (I'm thinking 2 or 3, not hundreds). This was also part of the design document and would give an interesting non-linear twist to the story. You could buy extra lives, an invisibility cloak and a potion that makes you invulnerable for 10 seconds.

P.S. I used blender 2.49 (would've loved to use 2.5 alpha 1 but it's not yet perfect), Gimp 2.6.8 and ventilator's blender-to-mdl exporter. All of those are free. If we go for prerendered and someone's used to other programs, we can easily exchange models (someone makes them in program XYZ and we import them to blender). Also, the prerendered method gives us the freedom of post-production: All the cracks that you see in the level on the wall were painted onto the rendered image in gimp after rendering, using a free texture from cgtextures.

P.P.S. I'd really love to program particle effects and the like: something like you, George, have in your prototype. Stuff that sets the mood and looks cool. I think this could be done by the artist Team AND the programming team, as it needs a little from both areas.

About the game menu: http://www.youtube.com/watch?v=AS4zHPlH2CU
I really like that style. We should think about creating something like that, except simpler (no multiplayer options, no battle.net etc)

I don't understand these two questions:
5. Do we want a map like main menu? (what is a map-like-menu?)
and
3. Do we want sliders in the hud? (what would they be for?)

Monster post again ...