Episode Three is believed to have started some form of development in mid-2006, with full-scale development possibly commencing in late 2007. Valve temporarily stopped the main development pipeline in early 2008 for their Directed Design Experiments (that led to the creation of the Blobulators used in Portal 2 and Joshua Weier’s F-STOP gameplay mechanic which was at one point considered as the main game paradigm for a Portal 2 that would have taken place in the 1950′s), but since then, most people have assumed that some form of development is being done on it, despite Valve’s overwhelming silence on the subject.
There was a time when Valve did touch briefly on Episode Three during interviews, and they did say some interesting things. In addition, who could forget those mysterious 3 pieces of concept art we got, depicting surreal Arctic-Combine environments? But since then, there has been nothing. Not a single word. Mods, websites, and communities have come and gone. Valve has gone to town on plenty of other projects. In fact, if you went back in time to October 2007, and told the average Valve fan that he wouldn’t see any more Half-Life until at least late 2011, and that Valve would even do Dota 2, there’s a fairly good chance he’d laugh at you, throw Portal merchandise at you, then go back to staying up entire nights playing… well, playing Half-Life.
Valve has mentioned that they aren’t really doing episodic development anymore, but still, there are a few people who believe the next Half-Life will be the long-awaited Episode Three, and not EP3, expanded upon to become Half-Life 3. It does make sense - we know we’d laugh at Valve if all we got after 4 years of total silence was a mere episode. It’s been referred to as HL3 by journalists (most notably, Game Informer, who predict a HL3 reveal some time during this year) and even Valve itself. But we don’t quite know just yet.