There is no code currently being written specificly for a sequel to Cythera (hows that for weasel words?)
That being said, I've got the plot for the sequel (though it will require some capabilities that the current graphics engine doesn't support, so "Cythera II - Shattered Realm" would require "Delver II" tech). I've also got some "tech demos" of a new sprite & windowing graphic engine (16 bit w transparencies, though with the commonness and power of graphic cards, it might be easier to build on top of OpenGL instead (after all, OpenGL isn't for 3D only) - sort of like the way Diablo II uses hardware acceleration), and a pretty cool embeddable/extendable scripting system (which solves many of the problems of current scripting system). I've also got some ideas for non-RPG games that are set in the world of Cythera, but again, no code.
So bottom line, there is currently not a sequel (either with the same engine, or a sequel to the engine itself) being worked on, but various bits and pieces that may (or may not) end up in a sequel are being worked on. I wish I could answer "yes", but I currently can't.
Yes, I'd also love to make a massively multiplayer online role playing game (especially one set after the sequel, or perhaps just before - what goes on in Cythera after you heal Alaric will be quite interesting, answering many of the secondary unanswered threads in Cythera), but I currently don't see that happening for a large number of reasons.
Mad, Bad, and Dangerous to Know...