Hey, I don't think that everyone here is grasping exactly how isometric scenes are made. If I'm mistaken, then I'm sorry.
What it is not - a bit sprite rendering of a 3D model. That would be easy.
An isometric building is made up of layers of sprite tiles. Let's say each layer is 64 pixels x 64 pixels. So, first you tile the ground floor with floor textures. Then, you tile the next 64 pixel level. You keep going up and up until you reach the very top of the building. You're basically building it one layer of bricks at a time.
Let's grossly oversimplify this,
Ground floor tiles...
11111111
11111111
11111111
11111111
11111111
Brick layer one tiles...
22222222
2 2
2 2
2 2
22222222
Brick layer two tiles...
22222222
2 2
2 2
2 2
22222222
2nd story floor layer tiles...
11111111
1 1
1 1
1 1
11111111
and so on.
After you've constructed your building, you have to fill it with furniture and objects in a similar manner.
If it was a single sprite render, then you couldn't walk inside the building, or on top of it, or any such thing that makes isometric games special. You couldn't have roofs that dissapear when you walk inside the building. You couldn't walk behind a building the way 2D isometrics allow you to. In a proper isometric game, you're obscured by anything in front of you, yet you only collide with the base of the tile.
Quote: "and when they reach those towns and special locations, then switch to the isometrics, so we aren't doing all of the stuff in-between?"
There's really no point. If your isometric engine is good, you might as well just use it for everything. If it's not, then it sucks anyway and should be scrapped.
I've dealt a LOT with isometric games. I promise I know what I'm talking about.
Let's compare it to something. I like writing. However, I don't write on vellum with quills like Shakespeare might have done. He was great, so shouldn't I use the exact same tools that he did? Nope, sorry, I'm going to use modern tools to accomplish the same end effect.
I love isometric games. If it was feasible or wise, I'd certainly be making a 2D isometric game. There's nothing like nostalgia. However, Matt, I think you're in for a world of disappointment if you seriously undertake this project with your team.

Come see the WIP!