Was just curious if there were a free(or perhaps cheap) engine available that allowed the creation of 2.5D games in the vein of Daggerfall and Arena on modern OS's?

Specifically 64 bit Windows 7

Just feeling a bit inspired and would like something to tool around with while waiting for Skyrim's CK.

Use a 3D engine. Create 2D sprites that always face the camera (for enemies, weapons, etc.) with 3D environments. Unity and UDK are popular.