I figured this would happen.
They weren't working on this with Microsoft, but their relationship with Microsoft (and the financials of AQ Interactive, the publisher) probably led to the game's demise.
We all know how Microsoft feels towards 1st/2nd party development (closing FASA, closing Ensemble, letting Bizarre and BioWare slip away), and it was obvious Mistwalker would be the next studio they'd let go. All of Mistwalker's games bombed (even their DS titles!) except for Lost Odyssey (and that's not doing well enough to provide any sort of substantial income), and once MS secured the support of Namco and SE (via Tales and Star Ocean), they probably felt that they didn't need to waste money on Mistwalker anymore.
Mistwalker probably has no money at this point outside of Sakaguchi's private funds, and the company is probably on the path of Free Radical and Factor 5. Cry On was their Timesplitters 4.







