It certainly seems to have gone on indefinite hold at least.
It was announced at the same E3 as Move and Kinect (Natal and Dildo at the time) and here we are Move is out, Kinect in a month or so. I think Ninty probably tried to get 3rd party devs on board, but they weren't having any of it. What with them having to get working on Kinect and Move for Sony, the Vitality Sensor was probably a device with no clear application to bring in the punters. Likely Ninty didn't have its own suite of games to run past 3rd parties to get them on board either.
Perhaps Ninty figure releasing with Wii2 gives them the opportunity to work on a killer app for it, and it will release with every console so it will have a 100% attach rate, giving 3rd parties more incentive to develop with it in mind.
“The fundamental cause of the trouble is that in the modern world the stupid are cocksure while the intelligent are full of doubt.” - Bertrand Russell
"When the power of love overcomes the love of power, the world will know peace."
Jimi Hendrix
