Hi Fee,
My son (1st pregnancy) was not engaged right up until 39 weeks when my waters broke, and then I was induced.
It seemed to have no effect on my labour at all, as he fit through my pelvis fine in the end and I had a vaginal birth.
I have heard of heaps of women whos bubs did not engage until they went into labour, and they did not need C-sections... so try not to be too scared by what your OB is saying... I think its a bit silly for him to be saying so at this early stage too... there is still quite a few weeks left for things to change.