I don't see how Microsoft did anything wrong here. They allocated a budget for a project and the developers failed to deliver causing Microsoft to lose confidence and cut losses.

I do hope you guys realize the game isnt canceled for good, its just being developed by somebody else

Let's just leave this subject lie with that, okay?

Capitalism... it's what's for dinner.

...

No, I have a jester's cap.

if true then they should give it to a japanese team sicne the original was made by a japanese team in the first place, and with 5 million $ Microsoft could have bought a lot more ¥

And they hadn't even made that trailer themselves:

"Darkside was in the very early stages of development when E3 came around in June of last year, and some at the studio say they were shocked to see Microsoft announce Phantom Dust there. They were even more shocked to see the game announced through a pre-rendered trailer that nobody at Darkside had worked on, according to studio sources."

Sony cancel projects all the time too, you know.  Most recent one that springs to mind is Warrior's Lair, which was about as far along as this judging by the footage that was released.

Did they fail to deliver?  The article suggests MS increased the scope of the project but gave them no more money for it:

"No more than a week after they’d signed the contract, according to several ex-Darkside employees, Microsoft’s team came back to the studio with a new request: they wanted a single-player campaign. “They decided that fans were gonna want a single-player game,” said a person who worked on the project. “But they weren’t going to change the budget or the timeframe.”

Suddenly, what was once a $5 million multiplayer reboot of Phantom Dust had become a $5 million multiplayer reboot of Phantom Dust with a six-hour single-player story mode attached. "

" One particularly strange moment for Darkside happened around then, when Microsoft’s Ken Lobb said on a podcast that Phantom Dust would be “about a 30-hour JRPG.” The developers were baffled. That was never part of their plan."

Well, they thought Battletoads was more ripe for a remake but got turned down for it:

"At one point Darkside pushed for Battletoads, according to that source, but Microsoft told them it was off the table."

I am inclined to agree with this, though.  Although I personally thought the leaked footage looked pretty fun, as a multiplayer-only reboot (as it was originally imagined) I don't see how it would've caught on with the masses to warrant its budget back.  At 8m you're approaching things like the budget for the original Gears of War.

Lol the budget they're giving Phantom Dust is pathetic. I expect PD to flop and be reviewed poorly, MS has all this money and they're wasting time on stuff like PD *rolls eyes* Keep up the good work MS /s

Lol He doesn't have to be from the M camp just to post it. Not everything's a conspiracy.