Whoops, saw this earlier and meant to reply and forgot. I believe the publisher had concerns with the sales numbers. Obviously a 27 book series is incredibly ambitious on its own, and then these were pretty strange books that would probably struggle to pick up new readers the further it went. I also think that the release schedule was just too aggressive. I mean, he was releasing like 2 of these a year, and they're like 800 pages apiece. And sure, a Danielewski page isn't the same as a regular page in terms of wordcount, but that's still a lot of material really fast.
That said, the books are absolutely still worth reading, and I don't think Danielewski's given up on continuing the rest of the story somehow.