|Intel just announced that the first incarnation of Larrabee won't be a consumer graphics card. In other words, next year you're not going to be able to purchase a Larrabee GPU and run games on it.|
You're also not going to be able to buy a Larrabee card and run your HPC workloads on it either.
Instead, the first version of Larrabee will exclusively be for developers interested in playing around with the chip. And honestly, though disappointing, it doesn't really matter.
Intel hasn't said much about why it was canceled other than it was behind schedule. Intel recently announced that an overclocked Larrabee was able to deliver peak performance of 1 teraflop. Something AMD was able to do in 2008 with the Radeon HD 4870.
By then Intel wouldn't have been able to release Larrabee at any price point other than free. It'd be slower at games than sub $100 GPUs from AMD and NVIDIA, and there's no way that the first drivers wouldn't have some incompatibly issues. To make matters worse, Intel's 45nm process would stop looking so advanced by mid 2010. Thus the only option is to forgo making a profit on the first chips altogether rather than pull an NV30 or R600.
Do I believe the 48-core research announcement had anything to do with Larrabee's cancelation? Not really. The project came out of a different team within Intel. Intel Labs have worked on bits and pieces of technologies that will ultimately be used inside Larrabee, but the GPU team is quite different. Either way, the canceled Larrabee was a 32-core part.
It's not until you get in the 2013 - 2015 range that Larrabee even comes into play. The Larrabee that makes it into those designs will look nothing like the retail chip that just got canceled.
Intel's announcement wasn't too surprising or devastating, it just makes things a bit less interesting.