Starman.net 's full recap of the story
Long story short: there are a bunch of copyright issues especially with the soundtrack such as a lot of references to The Beatles. Apparently the ESRB rating postings were a mistake and were taken down eventually once the ESRB and Nintendo caught it. It seems like NCL will refuse altering the original game to satisfy copyright law. I know it's sad that copyright issues are making the game a no show but you have to give props and respect to Shigesato Itoi and NCL not allowing their game and original vision to be butchered because of copyrights.
While it still is a shame that a bunch of people who missed out on Earthbound on the SNES and wants to try it legally on the virtual console it's such a shame that the copyrights are holding it back.While a lot of people will hate that it won't come out probably never it's still honorable that Nintendo of Japan and Itoi refuse any alterations to their creation, if there was a heavily altered US VC version of Earthbound we would probably hear a lot of bitching anyways since it won't be like the original that a lot of die hard earthbound fans remember.