The Halo 3 engine is a very popular engine used in many machinima productions. Several examples include: Red vs. Blue, Deus Ex Machina, Pregame Lobby, and Cry Havoc.
The engine is versatile, with forge, theater mode, and highly customizable characters being its greatest merits. With forge, a director can build sets by editing maps, and with theater mode, capture previously acted out clips of film, with many options regarding camera angles.
Character customizability is also a plus, with helmets, shoulders, chestplates, colors, emblems, and genders completely customizable.
Setup is also easy; you build a set, act out scenes in gameplay, capture the scene, and edit it.
Unfortunately, there are a few drawbacks. For example, armor permutations are not transferrable, which means that if more unique character appearances are needed, the director either has to go onto xbox live, where weapon lowering is disabled due to a preventive measure, or to extend pre-production time to accommodate the creation of new profiles.
Forge is also somewhat limited; some dirctors have to improvise to set up a scene with the objects they want for a particular scene. For example, some machinima makers utilize mods, or utilize post-production software such as photoshop and after-effects to achieve the desired effect.