Now, I know what you're thinking. "Isn't Knytt Underground already a sequel to KS?" Honestly, if you ask me, I feel it's more of a game within a similar universe than an actual sequel to KS itself. Underground plays very similarly to KS, but as far as I know, it doesn't have a level editor (correct me if I'm wrong). Nor does it have the same feel that KS does (almost none of the same powerups, you turn into a ball, all the foreground tiles are black, etc.) But it does have some foundations that a modern game has that makes it more accessible to new players, such as dialogue between two characters programmed in, moving background objects, etc.
Just to correct you: KU does have an editor available (the one Nifflas used, plus the one I made, but neither is as usable as the original KS editor, mainly because you still have to write lots of .ini files and Python scripts by hand). But yeah, KU is very different from KS from a level-making perspective, since you don't advance in the game by acquiring Powers. In this regard KU is more similar to Knytt; of course, you can still make quests, but they're more akin to traditional adventure games than Metroid-like games.
It'd be nice if a KS sequel/remake were to be made, but I sincerely doubt just a KS upgraded with current technologies and standards plus a few tweaks and additions (like new Powers) here and there would make it nearly as popular as the original. Back when it was released, KS had no real competition, so now what's needed to regain some interest is... I really don't know ^^ Maybe new ideas? KU was kind of a new take on the Knytt (and WaDF) formula with new ideas, but it wasn't made with level-making in mind, I believe (base game is huge, editor made primarily for Nifflas himself, most ideas already used in the main game).
I bet he can reuse lots of Knytt Underground though. It even has a Juni sprite already. Would it be as customizable as Knytt Stories? Unlikely.
I tried to make the most of what I understood of KU when making the sample level, and aside from having trouble actually making a level that was more than a handful rooms, it's so different that a lot of things from KS just can't be done. What's more customizable is scripting (and even there there are many gotchas) and background (read: non-interactive) objects, and those you can't even draw frame-by-frame. Finally, there's the 'level selection world plus 3 worlds' structure that's forced into the game, but I suppose it could be done away with easily if Nifflas wanted to.