A spokesperson for Sierra confirmed that, "First and foremost, the game is absolutely not canceled." But does it have a publisher? "[Sierra] is reviewing its options regarding those titles that it will not be publishing," we were told.
While not explicitly stated, it definitely sounds like Sierra has begun the process of shopping its remaining titles around to other publishers. These include Double Fine's hotly anticipated heavy metal adventure Brütal Legend. We're still awaiting word on its fate, but can't imagine Tim Schafer and crew letting a little publisher scuffle stop the rock.