My vote for using 3D models as well. My first attempt to do an isometric game taught me that. For instance, I decided to use a 12 frame walk cycle for the main character. Everything less than 12 frames looked too choppy and artificial to me when animated. Then I decided to have 8 degrees of movement freedom, so I needed 8x12 = 96 frames of animation just for the walk cycle. If i wanted to add some more animations to my main character, then some enemy characters of different types as well, I would end up with hundreds of sprites to draw. That's without allowing the customization of the look of any animated characters. Of course, it was not possible to do so much drawing work by hand in a realistic time period. Thus I ended up modeling and animating the characters in a 3D program. Then I rendered the individual frames of the animations as separate images. Finally i combined the individual frames in sprite sheets using a 2D program and retouched them a bit to give more cartoony appearance.