There are still rumors floating around about its "not-deadness." My main assumption would be that the game was not quite what they were looking for--after all they cancelled Mythica as well and THAT certainly didn't have 360 concerns--but if the "not deadness" part pans out, I'd shift it to "wanting to move the project to the 360 to improve the acceptance of their new system." TFLO is certainly a game the Japanese would find appealing, but would it be able to dig the Xbox out of the hole? Chances are, TFLO itself would simply sell a few more boxes, but overall be poorly picked-up instead. If, however, they move it to a 360 project they'd stand a much better chance of giving that system momentum in Japan. Combined with the other developers they've brought on board and SquareEnix itself...
Heck, they could even finalize the Xbox version as well if they could, but releasing it for Xbox only would make much less sense than 360 only. The development may just have pushed itself late enough that they determined the effort would be better-spent on a new system than trying to defibrillate the Xbox.
