Apparently. Not anymore, though.
So, it was announced alllllll the way back in 2005, so yeah, no surprise I hadn't heard about it. Still, that's a bit of a downer. Even though it was apparently(?) just going to be for 360, the idea would have been neat enough to work around. I guess, as Siliconera pointed out, the development wasn't a complete waste, since some online bits were eventually added into WotS 4 that were likely based in WotSO's creation and mechanics.
I wanted to find the trailer for WotSO, under the impression that there was one, but no such luck. Oh well, just imagine a dozen samurai running around in silly clothes jumping on each other and stabbing peasants. There you go. Oh, and put some Japanese words in there, talking about how many people you can team up with and quest about with. Hell, since it's a dream now, make up an American trailer too.
And while you're at it, dream about a localization date for Way of the Samurai 4. Since, well, that might actually happen.