Microsoft has decided WinFS will be completely dropped:
In other Vista news comes word that Microsoft has decided to drop its plans to offer Windows Future Storage (WinFS) as a future update to the operating system -- WinFS Beta 2 has been also cancelled. WinFS was the name for the new file system that was supposed to debut with the shipping version of Windows Vista. Over the course of Vista's long gestation period, WinFS was dropped from the feature count then later brought back to life when it was announced that the file system would be available at a later date as a system upgrade for Vista.
WinFS, which is based on Microsoft SQL Server technology, was supposed to do away with traditional file/folder hierarchy.