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Not that it should be a surprise to anyone, but is this the first time Valve has openly admitted that Episode 3 is officially cancelled?
They've admitted to cancelling ideas before, getting to various stages of production before going back to the drawing board, but always (and appear to still) insist that it is in development on some level. That's why Newell's responses to questions about hl3 are usually some form of "we have nothing new to share." Valve doesn't like sharing until they're in the final stages of development, and hl3 has never made it that far.
Only those ideas and experiments never came to be. There's still hope