I think that Obsidian would do a better job even if they only had until Christmas- I loved the Sith Lords (despite the broken ending), and now they more fully grasp what it takes to get the job done.
However, I read in this month's Game Informer that KOTOR III is getting an entirely new engine, which suggests that it won't be out in 2005. It also said that Obsidian is developing it, and that the game's story will follow in the path of Revan.