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There were quite a few games being developed by Capcom in the late 90s that never saw the light of day; particularly those being designed by Capcom Entertainment, the American sister company. Most of these were featured at E3 shows as works in progress.

This was not all that uncommon within the entire console industry to display works in progress, even two or more shows running, that ended up being axed in the 11th hour. Virgin Games with the animated version of Aeon Flux comes to mind. They had an impressive display with a giant hanging statue of Aeon at their booth and creator Peter Chung was even at the show to promote the game that was eventually never released.

So games get scrapped even after they've reached a high level of development and marketing has already begun selling the yet to be released game.

RE2 was a well documented reboot because screen shots and early stories of the game in progress were published by the gaming mags of the time since it was expected to be such a huge title for the video game industry. But because it was such a high profile game, the early version was scrapped by Okamoto (head of R&D at the time) when it did not meet his expectations. But there was no way the game was going to be scrapped entirely for obvious reasons.

So it happens, but there are always going to be questionable titles that end up being published anyway, whether it's because they are smaller investment games that are not expected to turn a big profit or just it's by a smaller developer that simply does not have the luxury of starting over with a new idea as they need a return on investment before doing another project. It's typically the larger development studios with many teams that have the luxury of scrapping projects that don't meet the standards of the company.