I think they were just plain dissatisfied with the results they were getting. Blizzard are weird like that, if a game in development isn't as original and as fun as they want it to be, they just drop it like it's hot, drop it like it's hot, drop it like it's hot.
They switch developement teams in the middle of production. THe new team had to throw away most of what had been done already and started from scratch. By the time it was jsut about done the new console cycle began. The felt that the cost of developement would be too high and canceled it.
Yeah, I waited 4 years for that game. Such a shame.