I vote for developing FE, whatever you decide to call it.
Tactical combat - as it currently exists it's pretty crap. But it could be brilliant. Zones of Control (think Panzer General or Blood Bowl), a Move or Fire/Cast rule, Terrain Modifiers (attacking a lower tile gives a bonus), Line of Sight (can't see or directly attack units in or behind trees)... Stuff like that would make what's already there enormously much more entertaining. Please take a good look at games like Blood Bowl, Age of Wonders, and Heroes of Might & Magic. You guys can do this better than MoM did. But what's there right now is worse.
Unit Design - again, what's there right now isn't exactly awe inspiring. Primarily for the two reasons that gear research doesn't play well with the unit designer, and cross-subfaction diversity isn't anywhere near great enough. What's the point of designing my units if they don't feel unique, and/or aren't super-specialised to do that one thing I'll be using them to do the next 20-40 turns?
Research - I actually really like the individual techs, but the tech trees don't offer much in the way of short term (40-80 turn) counters, nor do they seem to me to offer much match-length versatility. Compare to GalCiv2, for example, where lots and lots of techs are hard counters to each other, and players can string together a vast, vast pile of different match length tech strats, because there's so many synergies to exploit. EDIT: more individual steps on the tech trees and "tech crashing" (very fast research for a short time at a high cost) would also help.
RPG Elements - not sure what to say here, other than... Keep working on it. I don't know what I'd try to improve it. What's there is good, and I'm sure it could get even better. I'd definitely be up for some quest & quest-like world events/locations DLC.
4Xpansion - Keep doing it the FE way. Not allowing cities everywhere, but not placing any real restrictions on city spamming, works really well in my opinion. I never understood why Civ didn't adopt the idea after seeing Age of Wonders and the various space 4X games do this.
Diplomacy - transparency, personality and unique dialogue is what makes or breaks diplomacy for me. GalCiv2 nailed it right out the gate; the inclinations of the different AI personalities were obvious, the various factors influencing them were clearly displayed, and both were clearly conveyed through the dialogue. Sure, GalCiv2's diplo could be lots better (and its dear dev could have not decided to break it in ten different ways ), but what's currently in FE was a significant step backwards. Speaking of, you should probably drop the Political Capital idea. You guys have had nothing but time and opportunities to try to turn it into something interesting, but it really-really hasn't happened.
Setting - I'm sure FE has a vivid, imaginative and compelling setting. But I didn't buy the book, so I'm just guessing... Which is the provo-way of saying it needs to come across stronger in the games. There's not a lot of obviously distinctive stuff in there right now, and I doubt most of us actively look for the fluff. Maybe adding a couple of lines of VOs to the default leaders, and to a distinctive monster or five would help. Unlike walls of text, VO doesn't really get in the way.
AI - I feel like a git saying this, but... But the AI kind of sucks on both the strategic and tactical layer. The game can definitely be a challenge. I still can't beat max difficulty. But the AI really doesn't play very well, it just gets to bend the rules a great deal. And I'm not against that in principle, it's just that past a certain point it starts to detract from the experience when the AI repeatedly makes bad decisions.
I know all of that sounds very negative, but that's not the intent. FE is a pretty good game already, and the different components really do come together quite nicely now. But it's also a game that makes me go "aww, if only XYZ got done to what's already there, this game would be sooo much better." That's not a great thing, but it's not a bad thing either. It really just means the game is good enough that I'm seriously into it and care about it.
So again: my vote is to keep working on FE. It's the kind of game I want.
EDIT: Oh and... If you're dumping the Elemental brand, please, please dump the horribad GUI too. And with the next one, don't worry about screen real-estate, don't hide buttons, make sure everything clickable is at least twice as large as the mouse pointer, and make sure all the font is large enough to be legible. Also, try to be colour-blind friendly if you're not already (I wouldn't know). I know Frogboy thinks the current GUI is an improvement over GalCiv2, but the only thing that proves, is that he shouldn't ever be allowed to have an opinion on GUIs