They can absolutely transplant a PSA petrol engine, particularly the smaller ones, into the existing Panda with minimal engineering if it meant keeping the existing factory in Italy running longer (which they seem keen to do - but didn't Alfa Romeo decide it was to take over it so they can build all their cars in Italy?).
But if the Avensis was anything to go by, it probably will feel like a huge after thought with crappy gearing and if it's only produced for 3 years or less, it means buyers will be suck with an engine most of us Fiat people on the forums with decades of experience can't advise on too well, and that people on Citroen / PSA brand forums or pages will also not be too knowledgeable on. As an owner that does DIY stuff, it was crap in the Toyota having a lack of information. And they change all sorts of random things like the ECU and bits attached to make it fit, that are all new but they don't exactly publish an in-depth and transparent list of changes made either.
I'd honestly love to see the current cake fed Panda generation live on. People are still buying it, spending their hard earned money on it. Putting their family and friends in it. Interesting to see if it'll pull off a 4 or 5 star Euro NCAP rating with the same body... just with electronic gizmos added. It was more how the metal crumples and the few tests it did have not restraining the occupants properly that put me off. Even with the smart tech and even with a 5 star rating, I suppose I'd still be a little concerned. Safety is the sole reason I didn't buy a fully loaded new Panda or even fairly recent one and went for the CT.
Seems like they are going to (as mentioned previously) keep selling the current Panda alongside its replacement for a few years. Didn't the 169 get sold as the 'Panda Classic' for a while when the current one landed? I see weird 'Renault Clio Campus' models too, I presume that was a similar thing. The outgoing 500 is called the Classic now is it not? Seems like the same strategy. Digital gauge is an easy way to make it look good on test drives. Probs using PSA electronic bits and software with a Fiat theme. These are the things buyers care about on a test drive to make a decision... if it works for VAG to sell cars because of how the door feels to shut, or how quiet it is compared to a Honda, despite Honda having superior engineering, then it will work for Fiat to keep selling the Pand(in)a I suppose!