Nimoy was offered to direct Generations. Nimoy had problems with the script (including Kirk's death which he repeatedly said he would never have allowed, having made that same mistake himself in killing Spock) and said that, given he wasn't going to direct, he really couldn't be part of the film in a Spock appearance either and told Berman that the lines for Spock and Bones could've been given to other TOS alumni (which is ultimately what happened). With Nimoy out for the appearance, Kelley followed suit, so to my knowledge it didn't have anything to do with Kelley's age or health.
Yistaan's right. This was related in Nimoy's book, I Am Spock, right Vistaan?
There was nothing there about the cancer that later caused Kelly's death.
Berman really blew it with Nimoy. As Nimoy says in the book (or an interview, I can't remember which), Berman gave him the script, Nimoy read it, and then had a meeting with Berman. Nimoy said he had big problems with the script, and that it needed a major rewrite. Berman said they were already in production and that couldn't happen, so Nimoy walked.
Later, Ronald Moore admitted that Nimoy was absolutely right about the Generations script that he and Brannon Braga had written. He said they had blown the story and that the death of Kirk, in particular, failed to have the resonance they wanted it to have. I don't put all the blame on them, however, as, apparently there were stipulated rules/conditions on how the TOS characters would be used in the script. I don't know if these rules were from the Paramount execs themselves or from Berman, but they were there. Basically, Spock and Bones could be used in the beginning, but after that, they were gone. Kirk could be in the beginning and the end. I think it was hard for Moore and Braga to fit a story to those conditions.
Nimoy wanted a more integrated role for the TOS cast that ultimately had them working alongside the TNG cast. Maybe have Kirk transported through time and meeting up with the aged McCoy and Spock?
I have no doubt that Generations would've been better if Berman had looped in Nimoy earlier. Nimoy said he had never done a project where he wasn't involved with the script right from the beginning and was angry at Berman for his treatment of him as a director.
It led to Paramount giving the cold shoulder to Nimoy until Abrama, Orci, and Kurtzmann came to see him to get him in ST 2009. That's why Ambassador Spock never showed up on DS9 or in the TNG films, even though Nimoy was open and, from my reading, really interested in guest starring again.