At Square-Enix's fiscal meeting they candidly mentioned the White Engine development is moving at a sluggish pace. However, they are not abandoning creating their in house engine. Since the engine is the backbone for Final Fantasy XIII it seems likely that the Playstation 3 game will be further delayed. Square-Enix did not mention a date for Final Fantasy XIII (maybe now 2009?) or Dragon Quest IX, which was originally slated to come out this year.
Updates:
"Our worries may be without reason -- it seems Siliconera's initial story was the result of a mistranslation. According to dedicated fansite ff-xiii.net, Impress Group's recap of the fiscal meeting simply states that development of the White Engine is not stagnant. So, you may resume hoping for a late 2008 release." - http://www.gamesarefun.com/news.php?newsid=8456
