This is all speculation, so bear with me:
I think the entire landscape shifted with Sony's play on the generation. The "$599!" fiasco really tripped up a lot of devs that were kind of banking on Sony to continue with the monumental success of PS1 and (especially) PS2. It's also pretty clear that a lot of the major Japanese devs, like S-E, Capcom, and Namco, weren't completely aware Sony would be forced to price the system so high.
We saw the PS3 'teasers' in 2005 and 2006. All the big players were raising their hands in attendance for the PS3: Final Fantasy, Metal Gear, Devil May Cry, Tekken, Ridge Racer, etc. All of those (exception being RR) had traditionally been Sony exclusives in the past, so it was no surprise that there was a high level of excitement for the PS3 initially.
That ball dropped hard not long after. I recall Sony was the last of the big 3 to go that E3 - and we all remember the rest, I'm sure. The following few months would see a lot of devs shifting focus, combined with the surge of success for the 360 in the West.
The following meltdowns regarding multi-plat announcements of DMC4, Virtual Fighter, Tekken, and especially FFXIII, along with exclusives like Dead Rising, Lost Planet, The Last Remnant going to MS over Sony... all of these became legendary in GAF history.
In Relation to FFvsXIII:
It seems to me that the White Engine was being designed specifically based on PS3 architecture, S-E formed the ambitious idea of Fabula Nova Crystallis and needed two big games to showcase not only the idea, but the promise of their new next-gen engine. You had FFXIII, obviously, which would be the first, headlined by the king of 'new gen' FFs, Yoshinori Kitase, and maybe the original belief was that, like FFX, they could pull the game off with only about a year or a year and a half of solid development? That would put FFXIII releasing within PS3's first full year and a half, like FFX did for PS2.
Nomura, getting his big boy pants after KH, was promised his own production with the understanding that it would proceed FFXIII. They probably figured they could pull off FFXIII and FFvsXIII like they did with FFVIII and FFIX, i.e. all hands-on-deck for the first game, the closer it gets to completion they start transitioning staff to the next project, use the same engine, and ideally get these games out a year apart from each other.
Add in the internal problems with the White Engine, the company's shift to multi-plat, an entirely new engine being worked on (Luminous), and any other unreported issues within the various productions... now we are here. FFXIII received a depressingly underwhelming release, the Agito XIII title is completely dropped in favor of a less inspiring 'Type 0', XIII gets an 'apology' sequel, and FF fans worldwide now use VersusXIII as a running gag.
That's not even mentioning the FFXIV embarrassment and its impending 'apology' in Version 2.0 re-launch.
How Wada still has his position is perhaps more of a mystery to me than Versus' development muck-up.
