See "Shuttering Manifesto", here: http://www.manifestogames.com/node/5151
Excerpt: "...Clearly, we haven't succeeded in realizing that vision. There are a host of possible reasons why; perhaps we launched with an excess of naïve optimism, through of course a surfeit of optimism is an entrepreneurial necessity. We did not achieve the critical mass of support by independent developers that we had initially envisioned (some of whom, bizarrely, viewed us as a competitor), though we appreciate the strong and enduring support we received from some. We always knew that the essential problem we were trying to solve was a marketing one, but we never figured out how to crack the marketing nut, at least with the minimal financial resources we had available. We failed to raise substantial venture money, despite engaging with many VCs over time. And of course, the recession doesn't help."
It's also somehow not surprising that a business founded on the principle of making games in a not business-like fashion failed as a business.
However, "scratchware" still wins, in the form of freeware games like N, Cave Story, or La Mulana that become sold on consoles, the now donation funded behemoth Dwarf Fortress, or as the directly commercial games like World of Goo or Braid. The piece touts "scratchware"; it was only the introduction that touted Manifesto Games.