Bethesda Softworks community manager Nick Breckon has confirmed that the next Elder Scrolls game, Skyrim, will use an all new engine. This is contrary to a recent rumour that Bethesda's next game would still use the Gamebryo engine that powered The Elder Scrolls IV: Oblivion and Fallout 3.
The controversy around Gamebryo can be summarised as: good at trees, crap at faces. It made Oblivion's landscapes gorgeous, but led to some ugly people and odd behaviour. The way it transitioned between low and high detail scenery as you moved through the world also caused some blurry textures and suddenly appearing objects on some machines.
Since Bethesda's parent company ZeniMax now owns id Software, the second most popular theory was that Skyrim might use id Tech 5, the engine developed for their next game Rage. Apparently not - "all new" suggests this is one developed specifically for Skyrim, or at least not seen in other games yet. Here's