There's plenty of good free or low cost engines around, such as Unity3d. So I don't think the engine would be the problem here.
As for the cost, it all comes down to how high quality game you want to make. For something like Dawnspire the figures Persus gave would be a good start, although the wages are definitely in the low end. To get an idea of average salaries in the industry, see here:
http://gamedeveloper.texterity.com/gamedeveloper/2008careerguide/?pg=14Average salary for programmers in Europe is around $53 000. For artists, its around $45 000. For Canada and US, the salaries are much higher.
In addition, even if you would manage to get some beginning developers to work for cheaper, you have to remember there typically are other employer expenses for having an employee in addition to the salary. Depending on the country these may be as high as 50% of the salary paid.
With the sum you quoted, I think you could get maybe 3 years of development with 5 people. Possibly more, if you had the money up front and would invest it smartly, selling some of them whenever you needed to pay more salaries.
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Then again, all that is assuming traditional developers and traditional offices. You could probably get some developers from Asia for much cheaper. But doing business there can have big overheads and probably isn't that easy for small companies.
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