Except it was in obvious dev hell for 10 years. From what we've heard from Valve - It's unlikely Valve has gotten past anything resembling pre-production.
Edit: Draw your own conclusions, but I find it unlikely Valve will do HL3 -
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I'm of the belief that they were well into HL3 and then production stopped because they had other projects to work on, and didn't want to continue developing it on the aging Source engine. Especially when Source 2 was one of those projects.
It would make the most sense from a development point of view to wait for Source 2's completion before continuing to work on Half-Life 3.
That being said, it's a fair opinion to have that the game might not continue development now because they're busy with so many other things, but I feel it can go either way at this point. Personally, I hope they continue development on HL3 now that their new engine is complete.