First impressions are everything. They have failed and should just move on.
No, they aren't and no they shouldn't.

They've already done half the work they need to get to their goal, to abandon it now would be even more of a colossal waste than if they never made the attempt in the first place.

There are MULTIPLE other games out there that didn't launch great and later reinvented themselves and gained new players. It can and has been done. And in this case, enough time will have passed that marketing the game a second time can work.

One thing I can tell you, because I know you and the other people hating on FFXIV are thinking the same thing: Cancelling the project and cutting their losses doesn't suddenly mean a better chance for a revamped FFXI. They would most likely devote the freed resources to a new or other project.