Yeah, the silence on KOTOR 3 has been way too much. KOTOR 2 did very well and Lucasarts just ain't gonna let a franchise like that die. My guess is that they couldn't get any other reputable western RPG houses on board (after Bioware and Obsidian it's pretty much just Bethesda), so they went back to Bioware with hat in hand and begged them to take on KOTOR 3. Bioware, interested in getting into the MMO field, proposes they make KOTOR an MMO, Lucasarts sees dollar signs after thinking of WoW, and ....
Nah, Lucasarts was working on KOTOR3 for a while in-house. It got the hatchet, most likely because next-gen RPGs are big and scary and LucasArts was going through a restructuring. Assuming they're actually doing a SW: Galaxies successor, which wouldn't surprise me, I assume your version of the events would be roughly correct.
Of course, it's Bioware Austin, not Bioware proper. It's a seperate development group that happens to fall under the aegis of Bioware. The guy running it is Gordon Walton who's worked for nearly everyone in the industry except
Bioware. They did beam a creative director down from the mothership in Canadia but I would imagine that's about it. Moving from Edmonton to Austin might as well be moving from the moon to Austin. Most likely it's mostly SOE Austin and NCSoft ex-pats.
Gordon Walton's involvement makes the Star Wars rumor really interesting, since he was most recently SOE's Austin studio manager, working on... Galaxies: Jump to Light Speed! Could we see Bioware/LucasArts/SOE all rolling around in the bed together? Or it simply could be SOE just getting screwed, losing the Star Wars license and key people too. Or the rumor could be totally wrong and the joke's on us