I actually did a videogame design course wtih a main focus on art and business so I can tell you what I desperately wanted from my course that was not delivered.
Firstly I wanted to actually make a god damn game. Talking about making a game isn't making a game, drawing concepts for games and writing a story and pretending to do the business side is still not making a game, only making a game is actual practice for games design so I'm glad you are hoping to do that with your students.
I would recommend doing it as a group project, assign a kid a specific part of game dev, or split them into teams and do it that way (art, design, music, programming). Perhaps teach them all the basics first to make it easier to fit all the components together. If my college had done a little game jam like this I wouldn't have seen starting to make a game seem like such a huge wall to climb with months of planning. I'd probably have started making games 2 years earlier and been a lot happier because of it.
You could even split them into teams and have a competitive game jam after you show them all the basics so they aren't calling you over to ask you rudimentary things.
- How technical do you think we can be without scaring the students away?
A lot of people enjoy the technical side of things while others shy away from it. This isn't really a problem because the people that shy away from it will get their chance when it comes to something they are more interested in like the art. This would also be aided by working in teams.
- Which concepts do you think constitute the 'heart' of the engine?
The behavior system is probably one of constructs best features. I would recommend showing them the main ones (bullet, pin, 8 direction, movement etc) so they can see how easy it is to make a simple game. You can make ghost shooter in under 5 minutes. Make it infront of them and get suggestions from the class on little things like the bullet and sprite image as well as death animations and the like.
- What type of game could showcase all of those concepts while still being fun?
Top down shooter, hack and slash, platformer, basically anything that has fundamentally simple gameplay.
- Most importantly, what type of game can be designed while following the 'key question' format and make it seem like a natural process?
Make a simple game in-front of them and take requests on certain things ("what should I make the enemy look like?") Show them how it all fits together using the engine. After it is done you can ask them "so do you guys think you could make this?" and then get them to make it, their own personal version.
Straight away you have them making a game, using all the basics of the engine and at the end of the day they have their own game.
I have 1000 more ideas on this so just ask if you want some feedback. I just think my course could have been 100x better than it was and I stay awake at night thinking of how I would do it.
Good idea on the whole though man. Really happy someone is trying to show kids how easy it is to make games.