All games have problems, and at the midpoint of a development cycle any game will probably look like a fairly large mess ...

Some developers are lucky enough that they can not only delay a game to fix its problems but can introduce further delays to polish up every element of the game; games like The Legend of Zelda, Mario, Grand Theft Auto, Halo and Gran Turismo are all games that have this luxury.

In contrast, most games have very solid budgets and release dates and are not give the opportunity to delay the game regardless of what goes wrong. A perfect example of this is Red Steel which was riddled with countless little problems which dramatically impacted the overall quality of the game, but it was released when it was because it had to be released along side the Wii; had Ubisoft taken an additional 6 months and resolved all of the little problems, while polishing the controlls the game would have (probably) been consided to be dramatically better than it was.

Games have been totally scrapped before. Ever hear of Resident Evil 1.5?

But the main reason they don't is because of how much money they pour in. They hope that if they release it, they will reduce the loss.

There were quite a few games being developed by Capcom in the late 90s that never saw the light of day; particularly those being designed by Capcom Entertainment, the American sister company. Most of these were featured at E3 shows as works in progress.

This was not all that uncommon within the entire console industry to display works in progress, even two or more shows running, that ended up being axed in the 11th hour. Virgin Games with the animated version of Aeon Flux comes to mind. They had an impressive display with a giant hanging statue of Aeon at their booth and creator Peter Chung was even at the show to promote the game that was eventually never released.

So games get scrapped even after they've reached a high level of development and marketing has already begun selling the yet to be released game.

RE2 was a well documented reboot because screen shots and early stories of the game in progress were published by the gaming mags of the time since it was expected to be such a huge title for the video game industry. But because it was such a high profile game, the early version was scrapped by Okamoto (head of R&D at the time) when it did not meet his expectations. But there was no way the game was going to be scrapped entirely for obvious reasons.

So it happens, but there are always going to be questionable titles that end up being published anyway, whether it's because they are smaller investment games that are not expected to turn a big profit or just it's by a smaller developer that simply does not have the luxury of starting over with a new idea as they need a return on investment before doing another project. It's typically the larger development studios with many teams that have the luxury of scrapping projects that don't meet the standards of the company.

Resident Evil 1.5 was the code name for Resident Evil 2 when it was in development. Capcom didn't want any of its design team to know they were working on RE2 due to the high level of expectations the gaming industry was placing on it. 

How do I know this? I doctored the original game script. I worked for Capcom from '97-99.

The sheer amount of replies to this post that have obviously only read the OP is staggering.

Now on to mention Starcraft: Ghost, Warcraft Adventures and Resident Evil 1.5...

 Nice stealth Wii trolling, kingoffail.

Let me fix it.

1) Be like Blizzard or Nintendo and scrap near-complete games because they have a history of quality software they don't want to tarnish, and they can make back their losses with their next quality game.

2) Be like everybody else and dump their shovelware on EVERY CONSOLE EVER MADE because it's too late to go back and they have pissed off shareholders to answer to.

I know you'd like to pretend your system doesn't get shovelware, but that's not possible.  The whole industry is over 90% shovelware, always has been, and always will be.

Does that mean you're disagreeing with the scrapped Resident Evil 1.5 o are you just adding onto his comment? We've all been seeing the videos of the scrapped game for years.

Resident Evil 1.5 is not a good example of a game that was scrapped, because it wasn't really scrapped per se. Again, that was just the stand in name for Resident Evil 2 while the game was in development. Development that was eventually started over at square one.

If you played Resident Evil 2, that was the final version of "Resident Evil 1.5" I played the early beta when it was roughly 80% done. It wasn't bad by any measure, but truth be told, it was a good call to re-do the whole game.