Favreau just wrapped Cowboys & Aliens and is about to embark on Disney's Magic Kingdom and "is excited about the opportunity to go do his own thing" while Kevin Feige as the ultimate custodian of Marvel's Iron Man franchise "sees it as an opportunity to bring some more fire to the franchise". Favreau is still on board to exec produce The Avengers which Joss Whedon is directing.With Iron Man 3 and Magic Kingdom both planned for a 2013 release, there was no way he could do both. There were rumors that the rushed production of Iron Man 2 really soured his relationship with Marvel. We're seeing the fruits of that now.
It'll be interesting to see who they get to direct. I wonder if Favreau will still reprise his role as Tony Stark's buddy Happy Hogan.