I think it was in part because in 2010, Microsoft was already switching gears to Windows 8. A part of that was DevDiv getting sidelined by Windows. Windows was not a fan of .NET in general since Longhorn/Vista, but more importantly, the grand plan for Win8 involved the brand new application framework, WinRT. So when it came to VS 2012 and .NET 4.5, the emphasis was on WinRT interop - which is not a scenario where DLR is useful.
It's a good thing that DLR is still there, though. While undeniably niche, sometimes it makes things so much easier. For example, I've used it to support dynamic reloading of C# code in a game, for rapid prototyping of mods.
Our funding was gone by April 2009 IIRC, which was before Windows 7 shipped. Jim Hugunin and I shopped the team around and eventually landed in the Technical Computing org. The only thing that survived from that era was Python Tools for Visual Studio.
It's a good thing that DLR is still there, though. While undeniably niche, sometimes it makes things so much easier. For example, I've used it to support dynamic reloading of C# code in a game, for rapid prototyping of mods.