The google blog has an Update on Google Wave:
Wave has not seen the user adoption we would have liked. We don't plan to continue developing Wave as a standalone product, but we will maintain the site at least through the end of the year and extend the technology for use in other Google projects.
Basically they tried new and interesting things, and achieved them, but they, and other users, never really figured out what to do with it, leading them to discontinue the product and figure out how to use the technology they created in other product. Not a huge surprise, but I am a little sad for people like @ginatrapani and her Guide to Google Wave.