@Tocky:
The way I've seen iso tiles stored in the past is the way you have them in that pic, and sometimes I've seen them be stored in the following way:
And there's some other storage formats I've seen, where the images are stored as blocks of arbitrary shaped squares that match the rough idea of how the object looks in the 2.5D isometric world.
And as you said at the end of your post to the nay sayers, this is a weird way of doing things and looking at some of the challenges there has been weirder systems out there with the limitations. If I was to do the engine in the normal DS / GBA ISO style it would be boring, and look like every other iso game out there, I'm going for a style here that means creative thinking is needed on the part of the graphics, so that you keep in mind the limitations of the system , and create an image that looks nice, but is looking like it was made up of tine single colour iso-cubes.
@all:
The engine I'm working on is currently version 1 - and I'm working on it at a paper level at the moment, so these mock ups are helping to shape the engine into something better. One thing that I have on the feature list for version two is the ability to spin the scene around to look at it from 1 of 4 angles, as well as using that 165 colour palette i mentioned before (by alpha blending the edges of the internal pixels you can create smoother looking floor tiles I'll do a mock up in a moment that shows what I mean).
Another reason for doing the tiles this way is map editing - I don't need a complete iso map editor, i can just use a 2d map editor to put the floor layout down, and then using lookup tables apply a specific wall tile to the walls at run time, again increasing the time to develop new maps, as I don't need to worry about making the walls seamless at design time, as long as they look good at run time I'm happy. Latter on I will do a proper level editor that allow you to select the wall for the area, but for now a 2d tile editor will do.
A quick mock up anim of what I mean about the smothing of the "pixels" in the next version of the engine (this will not be coded for a while yet)
I just spotted that I did not update that large iso tile clump one in the bottom left...