When Ponomariov refused to agree to the player contract, FIDE cancelled the match with Kasparov, breaking their own rules. In Bled the FIDE Congress decided that if someone didn't play he would be replaced by Ivanchuk. Instead, they dumped the match entirely and say that Kasparov will face the winner of the next KO instead. Why?
Word on the street says FIDE Prez Ilyumzhinov still needs Ukrainian cash for the KO. Canceling the match lets Ponomariov keep his title, for whatever that's worth. The KO title was barely worth anything anyway and it's certainly not worth two years. I'm certainly not calling him the world champion anymore! He was the last FIDE champ, but he's nothing now. If the KO depends on some of the same Ukrainians that sunk the Ponomariov-Kasparov match, they may have an equal incentive to sink the KO too. Without transparency this is the way it's going to be.
We've put all our eggs into the basket of shadowy politics and funny money and are reaping the painful rewards. When the sun was shining on Ilyumzhinov in the late 90's all was well, but now that he's out of money we're screwed. There is no infrastructure for bringing corporate sponsorship into the game, and who would want to put money into the mysterious black hole FIDE has become?