It's it's own planet, Sera. Earth is never mentioned, so it's assumed it doesn't exist. Seperate reality. There is no mention of space travel at all, so they can't leave. They actually explained the setting and all that in the title cut screen.
I actually think the characters and dialogue is great, it just seems a shame that everyone judges them purely for what they look like and take it at face value. How does Gears have a horrible story with generic characters, thus making it bad, whereas Halo is a 'masterpiece'? Gears pretty muched pushed the envelope as far as story telling method is concerned.
Also, regarding narrative, it's following a classic trilogy formula. The first one is quite insular, a solitary story of survival. Some information is left out, not adressed first up because it's not necessary to the current situation,(Like Alien.) although certain clues are dangled (such as Marcus's father's involvement, and the Queens words at the end. The second one opens the world up, we know the characters, we know the context, now they're suddenly given an enormous task, but they're more equipped and ready to deal with it. (Think Cronicles of Riddick, over Pitch Black, Aliens over Alien) and then 3rd one is classic last stand, like Return of the King, etc.
I remember being confused about the story at first, and thinking they left things out, but if you go back and play Gears 1 again now, after 2, they actually mention and give away a surprising amount, meaning it was intentional to not explain everything, rather than 'laziness'.
Also, a faster, prettier RE 4? Thats...a bad..thing?