On or about September 21, 2001, Maxis announced the cancellation of the promising Simsville project, stating that "Maxis and the SimsVille team have decided to suspend development of SimsVille. Everyone working on the project will be moving to other projects at Maxis. This includes The Sims Online and some other games in development that have yet to be announced."
In an era where unfinished or poorly finished high profile games are pushed out of the door to recoup development costs, this decision by Maxis is surprising, but is likely a positive development. The company is willing to cancel a project that doesn't seem to be panning out and instead focuses its efforts on other projects in order to make them better; this is the sign of good business practice from a company with a long history of great games: Sim City, 2000, 3000, Sim Ant, Sim Earth, and The Sims, among others (not to mention my personal favorite, Sim Farm). Similar decisions have been made by other top-name computer game companies in recent times, such as Blizzard's decision to cancel Warcraft: Adventures, Firaxis Games choosing to cancel Sid Meier's dinosaur game, and Maxis themselves cancelling the very exciting Sim Mars.
A number of reasons have come out about the cancellation, largely through interviews with Maxis employees. The biggest reason is that the scope they were intending for the game, which was to be essentially a neighborhood simulation somewhere in scope between The Sims and Sim City 3000, was very difficult to pull off with current technology. They were shooting for the ability to get as specific with the individual Sims as the player wanted, but still be able to enjoy the idea of managing the layout of a neighborhood (a pretty large one from the sound of it; they were using some aspects of 3000 in the neighborhood construction and management aspect of the game). Some of the more complex elements, such as the six degrees of separation idea of observing social connections in your town (kinda reminds you of e2, doesn't it?) and the ability to both manage individual lives as well as the town as a whole were very difficult to pull off on current technology.
Maxis was also willing to state that some of the ideas from Simsville in a watered down form were to appear in the upcoming Hot Date expansion for The Sims, which is something of a transition from a "life management" simulation of The Sims and the first two expansion pacs into a "social interaction" simulation which The Sims Online will build exponentially. In other words, Maxis felt that the niche for Simsville was being narrowed while The Sims was widening to fill in the gaps, and by adding the two factors together, it made sense to cancel Simsville.
In concept, Simsville still seems quite interesting, although it is also clear that the growing environment of The Sims is gradually filling the niche. Given the runaway success of The Sims and its massive installed base, it makes a lot of sense for Maxis to try to build on this and incorporate the ideas of Simsville into that line rather than start off a similarly-styled game on the ground floor.
Also of note is the fact that the project is not entirely cancelled yet within Maxis; the game's code is still considered live while there are no employees working on it. However, given the renewed investment in The Sims Online and the Hot Date expansion, it seems likely that there will be no renewed interest in the future in Simsville, as by the time the others are completed, much of its originality and content will already be able to be found in the universe of The Sims.