Killing Floor does use the UT04 engine, or UE2, used in countless other games. It's a much-upgraded one by Tripwire, so things are about on par with Source.
I have it, and personally find it much more fun than L4D. The zombie-killing just feels so satisfying; all the guns have a nice *CRACK* to them, and some nice recoil-feel (though it doesn't actually disrupt your aiming thankfully) There's definitely a lot of strategy to it too, and I guarantee on Normal you won't be able to beat the Patriarch (boss) first time. It's actually genuinely pretty refreshing to finally have a first-person shooter with a really good boss fight.