It is so obvious even from just reading the article that it really has nothing to with the engine as staff were already using Unreal and could have just rolled with that. Blizzard has become so utterly irrelevant.
Unreal Engine can obviously handle some things well, but when I've seen it used for less common mechanics, the results have been mixed. For example, climbing and traversing uneven terrain are pretty bad in games like Palworld and Palia. Compare to the Breath of the Wild engine, which handles those things beautifully.
It's plausible that such mechanics were planned for this game, and that Unreal Engine made it difficult to get results that meet Blizzard's standards.
Normally I wouldn't try to be an armchair game developer, but I'm leaning towards agreeing with this. the article does say:
Epic’s incredibly popular engine reportedly could not support the team's 100-player ambitions
which is a surprise to me, considering how robust it generally is. It's superficial, but I can point to Fortnite as a game using Unreal and supporting a hundred players in one lobby along with being able to spawn custom buildings on the fly.
The closest analogue I can think of is FrostGiant using Unreal for presentation, sound, and inputs, but their custom Snowplay engine for everything else in Stormgate. This makes sense to me given they're trying some tricky and somewhat novel things (at least) on the networking side that Unreal doesn't support.
All that to say: I'm very curious about the details on how Unreal was unable to achieve what they wanted at the number of players they were targeting. I'm also curious why reducing scope (either in number of players or feature set) wasn't a viable option, especially after so long in development. I don't mean this as a "they're obviously dumb and wrong", I am genuinely curious what was planned and not working. I hope we get more details because cancelled games (and the development process as a whole) is fascinating to me.
It could be the networking can't handle what they want. A game like fortnite doesn't need anything super special from a networking perspective. Blizzard lost their best to frostgiant for networking.
To me, the real story is that a merger has led to less competition in the gaming industry. Imagine if two major car manufacturers merged and then products started to get cancelled.