According to JoWooD they are still maintaining the rights and searching for another developer. This won't be as cataclysmic as some cases, since the game is built on top of another game engine, so it's only content/story that needs work, at least they won't have to work their way through the C++ of an entire game for another company to take up the torch.
That said, yes, I would say the chances are that the game was cancelled because what they were seeing did not match up to what they had seen of the Mod. I've seen some JoWooD games, it'd have to be REALLY crap for them not to release it.
Edit : Well, iirc, they did Gothic, which was a good game, but mostly it's mediocre stuff
