While Van Tilburgh could not openly comment to Joystiq on the assumption (based on Greenberg's statement) that Milo could remain a non-retail tech demo, he did clarify, "There's about 50 people on the 'Project Milo Team'" (which would seem an unlikely number of staff and apparent resources to devote to a mere demo).
Van Tilburgh deferred to Greenberg, who tweeted this official statement today: "Project Milo absolutely continues in development at Lionhead Studios, it is just not a product we plan to bring to market this holiday." While carefully worded, Greenberg's statement suggests that Milo, in some shape or form, is likely to be integrated into a retail product in the future.
Just last week, Lionhead head Peter Molyneux teased that there was "a very interesting reason" why the updated Milo & Kate demo was not shown to media outlets during E3. Could it be that Molyneux is saving the big reveal for his scheduled TED talk? Probably not -- but the "game changing" designer will be lecturing about his "astonishing virtual friend" on Tuesday, July 13. Hopefully, he'll start to Kinect some of the dots.