When a game hits retail with a resounding thud, it’s always a risky proposition to come back with a major sequel. But that’s the risk that SouthPeak Interactive is taking with the upcoming Two Worlds 2. With the original PC version sporting a 65 on Metacritic, and the bug-filled XBox 360 version sitting at a charitable 50, it’s clear the original game had major, major issues. With that relative failure (and some very scathing reviews) in mind, the developers have gone back to the drawing board and based on what we saw at E3, may have got the formula right this time.

Two Worlds 2 is a Fantasy Action RPG in the vein of Elder Scrolls: Oblivion, but with gameplay that seems to veer more towards the action side rather than the RPG, with a very dark and gritty feel to both the environment and the action.

Right off the top, the game engine (dubbed GRACE) has been completely rebuilt by Polish developers Reality Pump, and customized for each system. With development starting on each console as well as the PC, that should definitely alleviate some of the concerns from the port of the first title.

The world itself, dressed liberally in greys and browns, looks well detailed if a bit drab. One thing that stood out though was the 3D nature of the world. This isn’t just a collection of flat textures and static props, it’s a world of live objects that react to direct or accidental contact and dynamic lighting that creates great ambiance.

To continue the sense of realism, all of the swordplay was motion captured using Olympic swordsmen, and the melee combat looks smooth and flowing. The finished version will also feature Mortal Kombat-style Fatalities, adding that extra bit of satisfaction to the combat.

Two Worlds 2 will also feature a bigger game world than Oblivion, with multiple continents featuring European, Asian, and African styles. To help you traverse the world, you can go by foot or horseback as well as sailing across the game’s oceans.

The main story will feature 20-30 hours of play, with an abundance of side quests and collectibles. Multiplayer will include co-op modes, plus an interesting city management game. Develop your city to specialize in an area such as armor or potions, then trade your wares with other cities, including other members of your clan. It certainly sounds like an interesting sideline between slaughtering evildoers.

There are only three basic classes to choose from, but it’s what you can do with them through the game’s innovative crafting system that will add a lot of variety. Choose your ranger, warrior, or mage to specialize in ranged, melee, or magic-based combat, then gain experience to specialize in specific skill areas or go for a more balanced approach. Where it gets interesting is the crafting.

Everything can be upgraded in the game, including weapons, armor, and magic, combining to create new and more devastating combos and effects. Take a basic fireball spell for example. You can start with one fireball, then upgrade it to two, three, or five balls, which can then ricochet off the environment until they hit a target, and then even spawn a monster upon impact. Layering, creating, and experimenting will definitely be the key.

Another small touch I like in the crafting system is let’s say you have two weapons you like. One that looks awesome, and one that has great stats. You can combine the two together, but choose which look and which stats to keep. Most games, you end up losing the cooler but less powerful weapon. When you’ve played enough fantasy RPG type games, you come to appreciate the little touches.

Two Worlds 2 is planned for a Fall 2010 release on the PS3, XBox 360, and PC. With no new Elder Scrolls, Dragon Age, or other major console fantasy RPGs on the immediate horizon, there’s a chance for a well-made Two Worlds 2 to find a welcome audience. What we saw at E3 seemed to promise a lot of potential for a much improved experience, and as the GamerPops resident RPG fanatic, I’m hoping the end result is a winner.