The point he made that has riles up me and my developer friends is actually his boasting that GoW has only cost $10M to develop, with 20-30 people. There's no way that they are counting engine development and marketing into that number, and I understand from some people that a lot of the artwork is outsourced to another studio for GoW, so it's possible that his number doesn't even include that work. When you take UE3 development into account (especially considering that they've neglected the 'middleware' version of the engine for a while in favour of getting more work done on GoW), and the ongoing and upcoming marketing blitzes, GoW will be a $30M or more game to get to shelves. This is in line with other UE3 projects that friends are working on (though obviously it's possible that they'd be even more expensive without UE3).
The Unreal Engine isn't some magic bullet. It has a pretty nice toolset for artists, it has some pretty sloppy code, and ultimately, when you license it for $1M or whatever deal you can get, you'll have to devote probably another $1M+ just to get it in line with what your game wants it to do.
And now I've noticed that I've ranted a bit less lucidly than I had hoped for