Reverse engineering a Cyclone III system?

Reverse engineering is always possible. The question in these cases is always how much resources, mostly time and money, are available to those that want to do the re.

It is not easy. AFAIK there is no automated tool to convert from configuration bitstream to netlist for Altera devices. At least not widely available, but it is possible that specialized reverse engineering companies do have the technology.

But even after getting a netlist, still a lot of work is required to make a high level reverse engineering. And this brings thepancake's point, that in many cases it is easier and faster to implement the same IP from scratch.