Since it wasn't announced at GDC, my thinking is that this project must be dead or on indefinite hold.

While a lot of people were against this idea from Nintendo, I was one of the few that was eagerly looking forward to it. As someone who has suffered with anxiety and stress, I was looking forward to using video games to help me relax.

Hopefully it will come back in some form in the future. 

It'll save the Wii this year, haven't you heard?

Its pretty obvious its set for Nintendo's next sytem now

This! My guess is that the Wii2mote2 will have a built-in upgraded version of the Vitality Sensor.

It's definitely not dead.  They wouldn't put in all that work just to completely slash all that Research and Development.  Like others said it may be integrated into a bigger hardware package like the next console rather than just waste it on a few titles (unless they are big AAA titles).

Yeah, it's probably for a future console. It's too limited in it's current form, and by the time it releases, it wouldn't get much support anyway. I'm excited to see where tech like that can bring gaming in the future though.

Probably moved to their next home console. Nintendo has been marked this gen by the constant delays. I haven't seen a company with such internal development problems. Almost every big game got delayed for them and that ended up hurting sales pretty badly. Hopefully this will get fixed by next gen, so no last minute changes have to be made to every single game that's about to come out.

I think its been put on hold for now too

My memory must foggy because I can't figure out which big games you are talking about. I remember Smash Bros. being delayed twice but at 10m. sold I don't think hurt sales at all. Metroid Prime 3 was delayed but sold normal Metroid numbers. Mario Kart and Wii Fit weren't delayed. Maybe Super Mario Galaxy?

Wii Sports Resort and Motion Plus. Zelda SS. Vitality Sensor. Kirby Wii (by HAL)