In an interview with Destructoid, Microsoft Game Studios' Creative Director Ken Lobb said that they would love to bring back Killer Instinct; it's not something that is under development, though. "Someday we will bring back Killer Instinct", Lobb said which we see as a PROMISE, Ken.
So Killer Instinct will be released at some point. Probably. Maybe. Not tomorrow, probably not this year. Or in 2011. But you promised, Ken Lobb. Don't make me cry.