Though it hasn't been officially canceled, 1up claims the title "has hit serious, potentially stalling, development troubles." The site bolsters its claim with the fact that Cryptic has avoided any mention of the project, despite being in the news in recent months due to selling its City of Heroes IP to NCsoft.
1up's line of speculation could certainly be true, although the site's prior description of the possibly canceled title as "a big Microsoft first-party title that's been in the works for a very long time that people are very excited for" may not have been the most accurate portrayal. The title was announced in 2006 as coming to PC and Xbox 360.
I don't see how it would have worked anyway.
Yeah everyone would have wanted to be the cool characters.