-money is not an issue
I don't think this is an issue.

-the dev team is willing in this hypothetical
I mean, that literally depends if they are paid to do it and asked to do it as part of their job.

But there is another issue. Are there enough people with the necessary skills and training and experience to do it? Can SE recruit and train them faster than they retire?

-time is not an issue
Unrealistic. Of course time is an issue. Yoshi-P maintained a spreadsheet that accounted even for bathroom breaks, modified an existing (but different) engine and reused assets and lore just to change the engine from 1.0 into 2.0 in 2 years. Normally making an MMORPG takes many more years than that.

what would it take to update the entire game engine?
It depends on the extent.
  • Changing the network code is quite simple. They just change it. They already have, by the way, to make use of technologies being used by modern competitors. It was that change that they had to revert temporarily because it caused lag issues.
  • Changing the graphics seems unnecessary because the engine is capable of what you see in FF16, they just limit it on purpose because it's a multiplayer game. They are updating mainly assets and shaders rather than the engine in the graphics update, although there are a few functional additions like the experimental dynamic resolution feature.
  • Updating the sound is also quite simple. They did that as well recently around the time we got the Immerse Spatial Audio partnership.
  • Fixing "spaghetti code" can be difficult because it is essentially code, built upon code, built upon code. Like a stack of cards, if you remove the bottom card, it all falls down. Like a house, if you remove the support walls, it all falls down. The current game is built on the back of 2.0, despite that we have moved away from a lot of 2.0 principles ie. role actions are based on the cross-class system, we moved away from classes yet they still exist because the jobs rely on them, FCs and houses were designed for a single world but we can visit other worlds now, linkshells were abandoned and an entirely new UI made for cross-world linkshells most likely to avoid dealing with the old code. This code does get improved sometimes but it has the potential to break lots of things so they have to be careful doing it. Visiting other worlds and data centers was in fact an example of a major change they had to take their time with and be very careful with to avoid major bugs or data loss.