Well, what can I say. It's awesome. Especially the option to turn on 8-way movement, I loved that. I always thought 360 movement looked kind of "off" with the old sprites, but that's just me. The movement is pretty much perfect, as are the physics. I'm sure I'd be able to get myself stuck somewhere if I tried hard, but this engine seems really bug-free. Now you just need to work enemies out, map a couple of levels and there you have a good game. Provided the levels are good, of course. Although, even this engine test level was pretty good. If you threw that quickly together, I imagine you could do some great stuff given more time.
If I had to nitpick, I'd say Sonic jumps a bit too high in water.