The Last Guardian IS in production. Although the game was absent from this year's E3, that's what we've been repeatedly assured of by Sony reps. Well, front man Fumito Ueda, creator of PS2 classics ICO and Shadow of the Colossus, stepped out from behind the curtain to reiterate that fact, but with a little caveat.
In an interview with Weekly Famitsu on the recent addition of ICO and Shadow of the Colossus to the monthly Japanese PlayStation Plus free to play list, Ueda spoke of his mixed feelings on seeing his games made available for free -- although, people pay for the PlayStation Plus service, so technically, it isn't free. While Ueda was happy that the games he worked on could reach a wider audience, he expressed that he had made the game with the intent that they would be the sort of games people would be willing to pay for to play -- again, the service itself in not free.
Of course, no interview with Ueda can be complete without addressing the elephant in the room. When asked about how development on The Last Guardian was progressing, Ueda, who has continued working on the game as a freelance developer since his departure from Sony Computer Entertainment in 2011, answered that the game IS in active development. "However," he added, "[SCE] Japan Studio, which is developing The Last Guardian, is working on many games, like Puppeteer and Knack, to name just the publicly announced ones, and those games are of higher priority right now."
Other development studios have been brought in to help on the game, so while it may not be top priority for SCE Japan Studio, it might be top billing for others involved. On the other hand, SCE Santa Monica which was reported as a participant has all but outright denied any involvement with development of The Last Guardian. Said Tim Moss of SCE Santa Monica in an article by Eurogamer, "The only way you can say that is the knowledge that we contribute back to the central tech groups benefits The Last Guardian. So I'm guessing someone was slightly misquoted."
Puppeteer is scheduled for a September release and Knack will be a PS4 launch title in November. The Last Guardian will be coming out after that, apparently. Much after that, probably.
ファミ通.com [ファミ通.com] Santa Monica Studios clarifies its involvement with The Last Guardian [Eurogamer]