"The reports of my DE-mise have been greatly exaggerated." (or something like this) 

-Mark Twain

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?