I am just in shock...I know they won't just outright give up though, doesn't Peter Jackson have his own studio? let's just keep our fingers crossed. The good news is that
"this doesn't spell the end of the project; work continues at Weta Digital while new distribution partners are courted."
According to Variety
"While rumors had the studios concerned over a budget that was rising above the original projected $135 million pricetag, the filmmakers said the double defection came after U and Fox played hardball and unsuccessfully tried to get the filmmakers and Microsoft to reduce their profit participation."
Who could blame Microsoft and the film makers for wanting to make it good? They're not going to short change the movie... I think this is one of those cases where Hollywood said "it's our way, or the highway.."
you think, if anything else, Bungie could make a "Halo" movie with their next-gen software? Hell, the story telling style in "halo 2" was basically like a movie, I loved it.