The following is rumor and speculation until it is officially confirmed by LucasArts:
Yesterday, footage of Free Radical’s Star Wars: Battlefront III hit the internet and sparked a flood of rumors. Unless you’ve been closely following Battlefront III news, it can all get very confusing.
For a long time, Star Wars: Battlefront III was rumored to be under development by Free Radical. But nobody was able to confirm it. Suddenly, the game was supposedly taken away from the company. This, among other things, sparked a chain of events that lead to the closing of the studio in mid-December. The game, according to rumors, was handed off to Rebellion, the company that had developed Star Wars: Battlefront – Renegade Squadron for the PSP.
Things quieted down for a few weeks, until a former Free Radical employee leaked renders from the game created in 2007. About two weeks later, another major leak occurred when footage from Free Radical’s game hit the internet. It featured seamless transitions between land and spaces battles and an interesting piece of dialog concerning a certain Jedi Master’s allegiance. This was followed up by concept art depicting an evil Old Ben Kenobi and news that Free Radical’s game technology would not be handed over to Rebellion.
Today’s news brings with it a rumor that Rebellion will not be developing BF3. Instead, it is going to Pandemic, who developed the first two games. Rumors have been swirling around Pandemic since news hit that parent company Electronic Arts, who purchased Pandemic and BioWare in October 2007, would be letting go of the company. Nobody knows if they are letting go of both the Los Angeles and Australian studios, or just the AU one. Regardless, this makes BF3’s transfer to Pandemic all the more interesting.
While yesterday’s leaked game footage looked close to completion, nobody knows if the entire game will be handed over to the new developer… whoever it is. Many questions remain unanswered: Will the game be handed off to the new developer in full? Will parts of the game remain intact? Will the game be remade from scratch? Has the game been canceled? Only LucasArts knows the answers to these questions.
UPDATE: IGN Xbox 360 has released an interview with an ex-employee at Free Radical. It is very interesting, but does not contain much new information. The ex-employee confirmed that Free Radical had been developing the game. He said that it was pretty far along, at an Alpha state, but was canned due to many factors, including poor reviews of Haze (Free Radical’s previous game) and the economy. Also confirmed was the fact that the game’s technology, which would have allowed you to travel from the surface of a planet into space without any interruptions, died with Free Radical. Finally, the former employee lamented that had the Alpha footage leaked a month before, the positive fan reaction might have saved the company/game. There was no mention of the game’s current state.
Sources: 1UP, Destructiod, Joystiq, Kotaku, SPOnG
William Devereux (@MasterDevwi) is EUCantina's co-administrator, as well as the host of the We Talk Clones podcast. When he's not talking about Star Wars or programming, he covers tech news for Pocketables. He is also a Microsoft MVP. 
Lucas Arts needs to man up and announce whats going on. The whole secrecy thing is getting old and everyone now knows the dropped the ball on this one we could have one of the best Star Wars games ever out right now but now its looking like 2 years down the drain just so LA can save face. Which means no BF 3 for atleast over a year. I’m very dissapointed on how they’ve handled this so far with there still not being anything officially announced.
In this situation, it would actually harm LucasArts to announce it before they’re ready. What they’re doing isn’t different from the rest of the industry. 99% of other game developers/publishers don’t announce their games until they are ready. So, sadly, we’ll have to wait.
why am I not surprised to hear that Free Radical was developing this game they have not put out anything good since Hulk Ultimate Destruction back in 2005 I was excited about Haze until I found out it was terrible seriously how do you ruin a shooter considering they are all over the place these days no wonder Battle Front 3 got canned it was handed to a dyeing game studio that was a real poor choice on the part of Lucas Arts why would you risk the most popular game your company ever made