The bad news is that the game will not make its 2012 release window as originally hoped. That's still better news than having it canned completely. Bethesda states that the reason for the delay is "due to the fact that game development has not progressed satisfactorily this past year, and the game does not currently meet our quality standards."
They continue on to say:
Prey 2 has shown great promise and we regret disappointing our fans. We have made a substantial investment in game development to deliver the experience fans want. We are determined only to release the AAA game that fans rightfully expect, and are unwilling to compromise our quality standards to meet a release schedule.
You know what? I am ok with this.