Losing money is never good for the brand. Sony showed us FF13 versus and Rock star exclusive games that were canned, but that didn't hurt nearly as much because they probably didn't lose a lot of money. Losing money hurts a brand because it limits what you can do in the future. 

I wonder if they were asked to make a compromise between resolution vs framerate or something.

Nope. Not even remotely close. It just doesn't work that way. Not making the game would have been fine. After funding the development for years, canceling it would have cost them more than it did now. At least now they can make some of it back AND have another well received exclusive in their arsenal. What you mention would have worked only if it was cancelled much earlier on and by that time they simply didn't know it was facing problems. Keep in mind that the game would have come out much sooner had Sony not asked them to make it for ps4 instead and then having to do a lot of work to achieve that.

In the end, it worked out. Even if it's not perfect, it's much better than canned.

Wrong, sony having world wide brand appeal has nothing to do with catering to niche groups. It has world wide appeal because they started at the console market at the right time and have ties to major third party games that people associate Sony with. People think of Playstation when they hear Metal Gear Solid, Final Fanatasy, Grand theft auto, ect. Take all those niche game sales and add them together. They probably won't even meet 10% of playstation fanbase (assuming all those games sales are by a seperate person and not the same person). Microsoft really only started getting third party support during the 7th gen. Two gens after Sony had them already. That is the biggest reason. Also, this gen in particular Microsoft messed up the price point at the begining. 

The biggest costs of a game is production (putting out on retail and advertising). If thats the case, Microsoft wouldn't canned the game. Stop the bleeding before it gets worse is the best thing Microsoft could've done. They could use the money else where and please there stock holders if they make a profit overall on the xbox division this year. More money will allow Microsoft to get a bigger budget from their CEO to do more things. 

How can anyone be surprised.

Its not that the game looked awful, but other than ''from the guy who made Okami'' what other merit did that game have?

Its didn't look very good at all. The MP/Co-op sections mentioned in this video got me intrigued at one point https://www.youtube.com/watch?v=w63EKu9v5jY

This really is of no loss to Xbox owners. If anything, just proves MS don't know how to greenlight the right projects.

Wel, that's not true. There are certainly people who were interested in the game, and it sucks for those people that the game was cancelled. Is it the end of the world? Of course not. But it's certainly bad news.

Edit: Evidence!

http://gamrconnect.vgchartz.com/thread.php?id=224161&page=1

Wonder what this means for PG as they seemed to be on a streak. It's a shame for those that were looking forward to this.

It won't be long before MS start calling all their games 'Windows exclusives'. Perhaps the penny will drop then.

This is quite unfortunate to see happen. This was the only action rpg for xbox.
However, this only slightly effects XBOX as a whole. Most xbox owners aren't too interested in JRPGs. I always thought this game would flop sales wise, no matter how good the game actually be. This game wouldn't exactly make PS4 players come running to adopt the XBONE either. The people who are saying that Xbox is gonna die are nuts. I think this year is when Xbox recaptures the NA region. The exclusive list does look a bit lacking though.