If nVidia really have made significant improvements to the 8800 for then we'll no doubt see a BFG OC Ultra running a lot faster.
As far as what happened?
My conspiracy theory is this : nVidia had a lot of options for what they could release as an 8800 Ultra. I expect they had options right up to a dual GPU, 650/1100 card. But they waited to see what ATI threw out, so that they could pick something that would beat ATI, but not by a huge amount. They want both the crown of the fastest graphics card, and they also want the huge revenue from "performance" users - I.e. us lot.
There's obviously a production cost in the card, but there's also a huge amount of "profit" that they need to use to set aside R&D. If you like, it's a bit like buying software. The cost to manufacture the DVD and the manual is coppers, but the rest of the money isn't pure profit, it has to cover the development costs etc.
There's some facts to back this up.
At a recent show an 8800 prototype waterblock was seen, it was for a dual PCB card.
The original price tag of the Ultra was $999. There's no way nVidia would feel that what they're offering as an Ultra would be worth that. Even the launch price is steep for what it is.
So what I'm saying is, nVidia waited until they found out what ATi was releasing, and then produced something that would beat it. In the end it turned out they didn't need to do anything, so the little enhancements they had done to the 8800 they just threw on a board and turned up the speed a little. If ATi had come out with a monster, then we'd be seeing the Ultra as a 650/1100 dual GPU monster.