I'd say its likely on the back burner since Half-Life doesn't make Valve as much money as Portal or Left 4 Dead.
If you haven't gotten the clue yet it's pretty obvious Valve is scrapping Episode 3 and just going ahead with Half Life 3. There's no way a company would this long on just a 5 hour expansion pack. You ever notice how Gabe always gives a sly smile when people ask about Ep3 and says calmly that they're not working on it, yet on the few times people asked about HL3 he refused to comment on it?
True......but I still want a trailer and release date, well hopefully this time they will show us a trailer at this years E3, and it better not be a big letdown like they did last year with Portal 2 (not saying Portal 2 is a bad game, just saying that I was expecting something different last year)