Well, at some point I think they were actually planning to release it, but lost their bottle (which they tend to do with most of their innovative stuff).
Although I would love to have something like this, from a business point of view the decision makes sense. They have the iPad finally showing folk how tablets should be done (though I'm not a fan) and Android making its way onto other devices.
To cap it all, HP has come to its senses and cancelled the awful Slate abomination, which is excellent news because it means they've probably decided to work on a tablet device running WebOS.
The market for mobile devices is getting pretty crowded and MS is getting forced out. They can't afford to dilute their efforts. I think we'll see a few more interesting project cancellations before Christmas.
The real disappointment for me is that this will probably mean the end for handwriting recognition.