More on Black Isle on IGN (thanks Frans) has further details on the closure of Black Isle Studios (story) from an unnamed former member of the studio. Here's a bit recapping how quickly things can change in the world of game development:

By Black Isle's account, the demo as delivered was 95% done, including all game functionality but only one finished demo level. (Work on the rest of the levels was approximately halfway complete; all that remained to be done was to populate and script the maps.) The next day Interplay began laying off people at Digital Mayhem. Since the Fallout demo was so polished, employees at Black Isle felt (relatively) secure.

Two weeks later, all but two members of the Fallout team were laid off and the project was cancelled. Interplay apparently believed the game could not be finished by 2004. Interestingly, the two members of the team not laid off were those who were previously working for the head of Digital Mayhem on a separate console title prior to moving to Black Isle Studios.