Well it looks like Deep Down is still alive, although I can't imagine it is the same game we saw years ago. Even still, I wouldn't be surprised if we never see it again.
Yoshinori Ono had this to say in a recent interview:
"It looks like Deep Down will take just a little longer. It also looks like some people are starting to ask 'did the development come to a halt?' but it's nothing like that. We're thinking about showing something that looks completely different from what previously shown, although it might be a while from now."
Could they be developing it into a full fledged $60 title? I hope so, but I'm not going to hold my breath.