They probably found the punching to be the most fun part, so it became ARMS.

God that's embarrassing..

That's what I'm thinking, it got replaced by ARMS.

The project was cancelled, but the ideas, both conceptually and programming-wise would surely remain. Miyamoto is very big(as I would imagine most people are) on putting ideas "back in the drawer" as has been referenced in previous interviews.

That being said, upon seeing this it seems clear to me that the motion 2P fighting system is quite parallel to what we are seeing with Arms, initial development could very well have been around the same time for both. Anyone else see the connection?

Same here

It never happened! There's no such thing as Project Giant Robot! Miyamoto only has great gameplay ideas! Never speak of this again!

Miyamoto confirmed that he scrapped the idea. i couldnt see it turning into anything anyways

I forgot about it. It's probably vaporware at this point, I'd be surprised if something came of it.

Nintendo is the master of recycling ideas. Mario 128 made it into various games like Pikmin and others according to them. The Ganndorf boss fight planned for Oot was scrapped due to hardware limitations. Nintendo basically had the idea of Shadow of the Collosus for OoT. That boss fight made it into Super Mario Galaxy with Megaleg. Giant Robot will re emerge if ARMS isn't it.

That was Miyamoto desperately trying to show the world that his beloved gamepad had an actual use besides off-TV play. After he shoehorned the thing into Starfox, thus ruining the game, they probably told him to keep his "gameplay" ideas for himself and then they cancelled it.