There was this actor that did an interview a while back, I forget his name. Anyway, he confirmed that he was flown to Japan to do motion-capture work on an upcoming Castlevania game, but then re-confirmed to the press that the game was indeed "canceled."
David Cox was asked in an interview if he knows anything about that teaser trailer featuring Alucard. He said "I have no idea." He proclaimed that Japan, US & Europe made pitches for the next Castlevania game, his team was chosen, and the rest is history. So, either the higher-ups at Konami didn't feel it necessary to tell their lackeys the full truth of the status of this game/the series, or Dave Cox is lying.
IGA has been assigned to other projects, such as Harmony of Despair, LEEDMEES, and Scribblenauts. He has not mentioned the "Alucardvania" since it's reveal.
In conclusion, yes, that game was canned in favor of the Lords of Shadow "reboot." Konami hasn't revealed anything since, so there's no reason to believe it's still being developed "in secret" unless you're that naive to believe otherwise. Move along, nothing to see here, yadda yadda.
The Radio Drama was likely to serve as a prologue to this game. Probably would've explained in-depth what happened to Richiter and the whip, as well as other things. And yes, the soundtrack would've likely been a HELLUVA lot better than Lords, without a doubt. Probably the "aesthetic," too.
Castlevania PS3/360 '08 prototype (English Subtitles)