First, read the announcement here.
Had that deja-vu yet? Me too . But let's not get into that right now, because I do think the Entity Framework situation is different from the WinFS/ObjectSpaces situation. So what's going on here?
The following is my speculation why they've cut it from .NET 3.5/Orcas. It's by no means based on any news from MS other than the announcement I linked above and some Sunday-morning reasoning. . I of course might completely miss the point, and likely will, so don't forget: it's just speculation.
The announcement speaks about Microsoft building applications on top of Entity Framework and also that the Entity Framework is moving towards SqlServer. Now, if you can add 1 and 1 together, you of course realize that if you have an application, say Sharepoint vNext, build on top of Entity Framework and you have one of your major cash cows SqlServer enabled with Entity Framework, you have a combination to earn more money: people who want the next version of your application also want your new database system.
The Entity Framework in ADO.NET vNext was designed to be database independent, and it might still be database independent when it eventually ships (I personally don't believe their H1 2008 mark). If you have one of your other major cash cows, say Sharepoint vNext, build on top of ADO.NET vNext, you then open up the road to host Sharepoint on say Oracle, DB2 or an open source database. This then would alienate one of your other cash cow products, SqlServer which will have the Entity Framework build-in.
If you were a manager at Microsoft, which earns $4 billion every 3 months with selling software build around this same strategy of product A triggers a sale for product B and vice versa, would you decide to keep ADO.NET vNext inside .NET 3.5 / Orcas? Which then would open the door to Oracle / DB2 for customers of your applications build on top of ADO.NET vNext ? No, I don't think you would keep it inside ADO.NET vNext.
For a technology so complex as the Entity Framework, it takes a long time to gain momentum, to get that critical mass of users so you can say: 'This technology is successful'. Some people, and I agree with them, have said that it's critical for the Entity Framework to be in .NET 3.5 / Orcas with a solid designer to gain initial ground to get the ball rolling towards that momentum. Releasing an add-on afterwards is not going to cut it, as it's then not on everyone's machine. I simply can't imagine Microsoft doesn't realize this too so there must be a solid reason why they cut it from Orcas / .NET 3.5.
Ah, of course, the designer, which wasn't ready on time, that must be the real reason, does it not? Let me tell you this: a company which earns (so that's the money you get in your pocket) more than $12 billion a year, a company which owns the toolmaker Visio so there's a massive amount of diagramming/designing experience in-house, more than anywhere else on the planet, a company which employs one of the most brilliant relational model orienteed people of all time, prof. T.A. Halpin, a company which already does have an entity designer build into Visio for a couple of years (start an ORM/NIAM model, and you see what I'm talking about), a company which, with prof Halpin who was one of the founders of ORM/NIAM, could extend that model towards the entity model easily, that company isn't able to produce a designer for the Entity Framework in a 2-3 years timeframe?
And you buy that story? If you do, the store around the corner has some nice pink elephants on sale, but you have to hurry, there are just a few left.
Update Apparently prof. Halpin doesn't work at Microsoft anymore.