"The reports of my DE-mise have been greatly exaggerated." (or something like this)
First off let me state this blog on Drive Extender is entirely based on rumor. While I have significant access to resources at Microsoft, none of the following statements are based on info from any person(s) I've talked about in any prior blog posts.
I do have other sources...
That source affirmed that Microsoft realizes future possibilities for DE (local/cloud storage hybrid), in a broader scale than it is used today.
With Google Chrome OS having generated some significant buzz on the matter recently, perhaps we'll see DE revived in the future after all?