I remember hearing about the H&K G11 over a decade ago, about how it was supposed to be the new wonder-rifle, what with its caseless ammo and all.  I didn't pay too much attention after that, but a couple of years ago I read that the whole thing had been scrapped, something to do with politics getting in the way.  

Anybody know the story on what really happened, I'm curious to know what went wrong?

The end of the Cold War and the reunification of Germany spelled the end for the G11 project. The economic forces at that time eroded a lot of the German military budget. This led to the cancellation of the G11 project. This is why the G36 project was begun as an alternative replacement for the G3. It was only issused to the German Special Forces in the early 1990s.

Who wants to invest in a new rifle system when your enemy is no longer there?
The gurrent supply of G3's and G-36's should do great for any possible clashes in Germany's near future.

Plus I am not convinced that the G11 is that much of an improvement.