With the sad passing of so many of the actors, is a Season 4 grounded in the town of Twin Peaks possible with new cast?

I think it could be, given how many "legacy" characters there are. Legacy in the comic book sense - new characters inheriting the role or position of a previous character. Double R changes ownership - or management; Great Northern suffers a dynastic war between Audrey and an illegitimate previously unknown daughter; Donna and daughter; and so on.

Even the FBI characters can have a succession although I think if Dale Cooper was replaced with a new guy or girl whoever it was would have to be Mulder and Scully tier to appeal.

The killer question is always, does David Lynch have the appetite to do Season 4? There are quite a few commentators I have read and listened to who state categorically that Season 3 was IT, the end, all answered and over and done with. Maybe, maybe not.

In real world terms as we have seen with the Watchmen property, even when the equivalent of David Lynch, Alan Moore, has stridently opposed any adaptation and washed his hands of it the IP owners have ignored him and pressed ahead (with mixed results). Maybe by the 2030s we will see the same thing with Twin Peaks?

Season 3 is the foundation of whatever comes next, in my opinion, because it unifies the original show, FWWM, its own episodes of course but also draws in some things from other Lynch projects.