I am not sure that engineering is terribly different from physics in this regard. I suppose what I was trying to convey is that it may be an issue. Some PIs are going to see it as a red flag. Others won’t. It’s probably also a function of how desperate they are for new students. It just adds a layer of uncertainty into the equation that doesn’t need to be there in my opinion.
For my part, I don’t have a standard opinion for a situation like this. If I have a funded grant that needs a student with no one lined up and I see someone like this come along, odds are I am not going to care. I will look at their resume, their transcript, and think “This person has some good experience, is mature enough to know what he/she wants to do, and has proven they’re better than their undergraduate grades. Let’s make an offer.” If, on the other hand, I have a funded grant and several people all looking for paid positions, doing a a non-thesis degree with no research component is not going to compare well to someone with more actual research experience. YMMV