"One source tells Kotaku that Final Fantasy Versus XIII was officially cancelled within the last few weeks. The decision impacted morale at Square Enix and staff were reportedly saddened by the move.
Square Enix, this source added, has also decided to let Final Fantasy Versus XIII die quietly on the vine and fade away, instead of officially announcing its cancellation. This would likely be due to the fact a public acknowledgement of a Versus' cancellation could impact things like Square Enix's stock prices.
Another source tells Kotaku that, a few months back, Final Fantasy Versus XIII'sdevelopment and resources had actually been folded into another game, which is to be the next numeric Final Fantasy title, Final Fantasy XV. Whether this meant actual game assets and code or simply the movement of staff was unclear. This information was independently corroborated by yet another source, though it's important to note both had learned of the "folding" prior to the more recent news of its outright cancellation.
So, is Final Fantasy Versus XIII finally and officially dead? Without confirmation from Square Enix, we can't say for sure. While these reports certainly indicate the long-awaited game has been cancelled, Square's reluctance to acknowledge them means those desperately wanting to see more of the project still have a glimmer of hope to hold onto.
But if the game fails to make an appearance at either the upcoming Final Fantasy celebrations or the 2012 Tokyo Game Show? Then yeah, given what we've heard (particularly of Square's reported desire to kill the game quietly), you'd be a lot safer assuming Versus XIII is kaput and start looking forward to the next big FF game.