An RPG in a FPS engine.
No offense, there is no possible way you could script any encounters, materia, story, ANYTHING in Source, its not possible.
Ever heard of the Chrono Trigger Remake Project (aka Chrono Trigger: Resurection, a project with the aim to revive Square's Chrono Trigger [SNES/PSX] with 3D Graphics)? They did it all with the Unreal Tournament 2004 Engine, which isn't an FPS, but it sure is hell of hard to implement the CT Battle System into it... at least that's what I think.
Just see the
trailer to see how amazing results they got.
Oh, man I cried so much the day they announced the cancellation
From what I have seen so far, there are various mods using the Source Engine which are really a lot of work...
Anyways, what I'm trying to point at is that one should never underestimate the power of dedicated fans, that's why I used the example of Chrono Trigger.