But a modern cryptosystem wouldn't use CBC either; it would use a AEAD mode, like AES-GCM or AES-OCB. A very, very modern system would use a native stream cipher like Salsa20 and a polynomial MAC like UMAC or GMAC or Poly1305. No cryptosystem in the world would use IGE mode plus SHA1.
There is no way around the fact that SHA1 with a bunch of semisecrets is not a real MAC. I have absolutely no idea why you would argue this point, but the fact that you do argue it is extraordinarily damning. I have never seen a project anywhere make so many mistakes and then confront such simple, straightforward, observations as "SHA1 is by itself not a MAC" with fierce arguments. The normal way of wiggling out of this problem is to fix your protocol. But your team clings tenaciously to a broken design. Why? Why? Why would you do that? How would anybody ever trust a cryptosystem designed by a team that would do that?