The game is not canceled
The rumor was already denied by Sony’s senior director of corporate communications Patrick Seybold, but if you want an even more direct denial, nothing would be more appropriate than the word of president of Sony Worldwide Studios Shuhei Yoshida, considering that Team ICO is part of SCE Japan Studio under his direct responsibility.
Destructoid posted that many of their readers have been called by GameStop to tell them that The Last Guardian is being Canceled. One of their readers Even have a recording of this call and even a site search on GameStop yields no results on the game. We have also called a few GameStops and all of them said the same thing - Canceled by vendor – And some of them even seemed sad to say it.
We are unsure of how true this is but with a number of people confirming the call and with the somewhat recent news of departing Team Ico creator makes this rumor seem very plausible.