With every MMO (and indeed, every genre of game) the developers are given milestones they must meet. These milestones are agreed upon before work commences, and they're used to keep the game on track and progress timely. Microsoft gave Sigil their milestones (or objectives if you like) but Sigil couldn't keep to them.
Microsoft would occasionally visit the Sigil offices in Carlsbad to view Sigil's progress on the game. Sigil set up demo's of the game to show it off to MS, BUT the stuff they were showing wasn't part of the current build being worked on. It was a mocked up version of a small area of the game, bug free and solid. Sigil were lying through their back teeth about the progress they were making.
Microsoft started to smell a fish. They hired a consumer group to provide them with a bunch of people and gave them beta invites, unbeknownst to Sigil. The beta testers knew immediately something was up when the chat channels ingame were filled with obscenities from these players who were clearly expecting to be playing a solid game and not a beta.
There's lots more to it than that, like Sigil completely ripping whole chunks of Unreal 2.5 code out because they thought they could do a better job than Epic, and the lead programmers not allowing anyone to use scripting tools and stuff that's almost mandatory in order to make a game -- but the long and short of it is that Microsoft got cold feet and dropped Vanguard like a bad habit.