The handful Fear Toxin induced hallucinations and psychological presence of Scarecrow in Batman: Arkham Asylum was perfect for the character. It also made for some fantastic in-game moments. However, it seems Rocksteady is not content with what they've done with the character.
Despite announcing that nearly every Batman villain imaginable would play a role in Arkham City, Rocksteady's Paul Crocker has cast a bit of doubt on Scarecrow's involvement: "In Batman: Arkham Asylum we had the whole Scarecrow thing, and we didn't want to do that again we wanted something different."
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It's unclear what, exactly, this means for Arkham City. Will Scarecrow play a more active role - much like the Riddler - or will he even be present in the game? Either way, I'm sure Rocksteady know's exactly what they're doing. I trust them to not remove one of Batman's most intriguing foes.
[RUMOR] No Scarecrow Scenes in Batman: Arkham City? [Arkhamcity.co.uk via N4G]