The hobbyist dev team I'm part of is planning on using sprites for our isometric RPG, but we are debating whether to: 1. Model our graphics in 3D software, then use the rendered images as sprites (which we're calling "prerendered 3D"); or 2. Produce sprites by some 2D process ("hand-drawn"). Does anyone know of isometric RPGs that used the latter approach?

Lets see, Shadowrun (SNES), The Immortal (NES), Ultima VIII, Darkmere, Furcadia, possibly Ultima Online, X-Com: Enemy Unknown, X-Com: Terror From The Deep, Wreckers, etc.

Their's a lot more than that and they're not all necessarily RPG's, but do still use 2D "hand drawn" isometric artwork to the best of my knowledge.

Dofus is a MMORPG that's isometric and pure 2D. Vector rather than hand-drawn, but that's more of a stylistic thing. Some of them are more hybrid - Eternal Eyes for example has lovely pixel-art sprites in an isometric perspective, but I'm not sure whether the background is 3D.

If you're looking for an example of the prerendered 3D approach, Harvest Moon: Back to Nature has that. Creatures 3 also has sprites like that, but it's not isometric - you might actually be able to get ahold of the sprite files though, since that game was intended to be user-modded including users making their own sprite sets.