Slashdot is reporting that WinFS Gets the Axe.  The full discussion is actuall over at the WinFS Team Blog.  According to what I can gleen from the post is that a number of important advances the WinFS team has made will be integrated into the next release of SQL Server.  Also, as client components become ready for “prime time” they will be integrated into the Windows client:

Windows will continue to adopt work as it’s ready

The way I read this is that Microsoft simply can’t make this technology work as a file-system replacement at this time and are choosing to “productize” the current advances that the team has made and will not answer all the questions we all have regarding the promised “Windows Future Storage” feature for Windows Vista.