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Games get canceled all the time no matter where they are in development. It's generally better just not to release a game rather than to release a bad game that isn't going to make any money.

The game could have been pretty far in development, so far that it would be hard to change it, and the external producers may have just decided the game isn't fun and isn't worth the money to fix. If that's the case, I'm glad it got canned.

All that being said though, I'm still going to run with this is just a rumor until I hear something official. I really didn't have any feelings either way about this game but I generally always take rumors with a huge grain of salt unless I'm very sure about the source.