Yea, the funding going belly up was definitely what killed it, but, I'm pretty sure I remember someone was written into the script who had passed away, and he said he wasn't emotionally able to use the script for a future project because of that passing
If I remember the sequence of events right (Jan will almost certainly correct me if I'm wrong) Franklin was in an early draft (if not the 1st?) and was written out/replaced when Biggs passed away. It wasn't until about a year or so later when Andreas also died that the script was scrapped.
The Memory of Shadows was canceled in February 2005. Katsulas died in February 2006.

Looks like the new JMS comics he's doing for Joe's comics will be monthlies but with breaks,