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Star Fox 2 was canceled by Nintendo because by the time that the game was nearing completion, (around 1995) Nintendo had already set their sights to the powerhouse system Ultra 64, which ultimately became the Nintendo 64 console. They had no reason to release a game that relied on highly technological 3D graphics on a soon-to-be obsolete platform, and they felt it more necessary that Star Fox would be one of the powerhouse games that would not only thrive on the natural 3D engine of the N64, but also show off what the system could do from the start. In short, they decided Star Fox 2 was unnecessary since Star Fox 64 was already reserved a spot on the N64 launch list, and they didn't want Star Fox 2 to sell poorly as a result since Star Fox 64 was obviously a much nicer game.
Personally, I love Star Fox 2, and I find it my favorite in the series. I wish they had released it after Star Fox 64 ON the N64.
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