Yes, a couple of years ago now.
Here is AG's news item about it.
You could do a search of the forum to see how people reacted to the cancellation, but the forum was down in the summer of 2003 so I'm not sure you'll be able to find any posts on it. In general, a lot of people were glad about the cancellation because the game was coming out a lot more actiony than fans wanted. And at the time, we thought we still had Sam & Max 2 to look forward to.
I'll see if I can find any threads about the cancellation in the temporary forum from that summer.
EDIT:
Here's one. On a mostly unrelated note, Lucas Forums, who hosted the AG temporary forum that summer, has flood control on searches. Flood control on searches!