It's easy to make terrible looking machinima, using default content and stilted animations. Just write a script, have people come online and do their actions, record it on voice chat. Do the animation scripting in the level editor if you're feeling adventurous. Most popular machinima productions these days are done this way. Nobody watches them for the animation of course, but to follow a story, or for comedy. That's stuff like Red vs Blue, which is performed in Halo multiplayer. WoW is another popular engine for that style. As you'd expect because they're using real game assets, references to game stuff are common...
Back when the machinima thing kicked off that wasn't as big, and more people were scripting out custom animations in their game engine's level editor, usually mapping out sets, making textures, and using some custom models. I don't ever remember seeing anything very good, but everyone was sure it had potential!
Unfortunately making an original set of characters, new levels for sets, custom animations for the character, and so on, is very difficult. It's a little bit easier than say, making an original 3d game, because you only need a specific set of movements and scenes, but it still requires you to do a lot of 3d work. And when you are doing that much 3d work you start thinking... hang on... this would look a lot better if I just rendered it in my 3d program instead of trying to shoehorn it all into Quake.
If you're happy to use default game assets in whatever engine you want, then it's certainly an easy way to make an animated cutscene, but obviously then your game will have Master Chief as the main character or a pink haired dwarf with a battle axe.