Did you know that Valve and Arkane were once such super best friends that Valve contracted the Dishonored studio to make one of their mythical Half-Life episodes? Funnily enough, I did. Everything I knew about Return To Ravenholm has now been revealed by those scamps at Valvetime, meaning the treasure trove of inside knowledge that I've kept for six years (told to me by candlelight) is now useless. I can only confirm the details below. Also, it's my birthday, and I hope to spend it only positing fun stories. If anything bad happens, it won't happen in my posts. Everyone fix a smile and join me. Smilier! SMILIER! Good.
Valvetime's sleuths were passed some images and animation examples by a mysterious source, then fansite Lambda Generation the details confirmed (a year ago - this post is in Valve Time) by the less mysterious Marc Laidlaw, Valve's lore master general. Return to Ravenholm was to be a standalone episode set between Episode 2 and Episode 3 that Arkane were working on as far back as 2006, and would bring the players back to the wrecked, zombified mining town. But those were also the reasons that the project was canned. According to Laidlaw: "As I recall, we felt like a lot of the staples of Ravenholm–headcrabs and zombies!–were pretty much played out, and the fact that it would have to take place sometime before the end of Episode 2 (so as not to advance beyond where Valve had pushed the story) was a creative constraint that would hamper the project... and Arkane."
So all we're left with is this video, that has a few pieces of concept art and animation examples.
I hope Arkane recover!