Yes, but it wasn't really a good choice. UE2 was very limited in terms of map size and was not capable of streaming new map data. The missions in Thief 3 were contained within much smaller areas than Thief 1 or 2 and often were divided into multiple zones. The game was still good but the engine did it no favors.Just an FYI, the previous Thief game ran on Unreal Engine 2. So UE3 for the next game isn't that much of a surprise.
UE3 is much more capable, however, and should be able to deliver large, open maps.