My understanding is that Staggs took one look at original plans and balked. What is there to do for anyone who doesn't care to color with the Princesses? TDO's panicked response was to change the name of the carousel to include Prince Charming.
Pixie Hollow is dead, dead, dead.
My guess is that the plans for Fantasyland will be significantly scaled back, Mickey's Toontown Fair, which was supposed to close way back when the first walls went up, will stick around indefinitely. There will be talk of a Phase II which will never, ever happen.