Project Milo, Lionhead's relationship simulation title for Kinect, has reportedly been cancelled according to Eurogamer. An anonymous source has told the site that development was officially halted yesterday, and that 19 contractors have been let go.
The source claims that the studio will now focus on the Fable franchise, with the Milo tech apparently set to be used for a "Fable themed Kinect game". While Milo wasn't shown at E3 this year, it was showcased at TEDGlobal 2010.
Peter Molyneux confirmed that Milo was more than a tech demo in June, following a retraction by Microsoft after it announced that there were no plans for release. Microsoft and Lionhead have so far refused to comment, but we'll update the story should any further information surface.