I was working for a videogame company that essentially went under because Microsoft canceled our next anticipated contract. This was one of two businesses to drop out from under me during my career. I've had a couple of cancelled projects as well, which are also somewhat disheartening. One was, oddly enough, also at Microsoft while working as a contractor. They put together an entire team before someone crunched the numbers and realized that the licensing for the game we were working on was so expensive, the project would likely not make any money. Seriously, no one did this before they actually hired an entire dev team? I spent about a week doing nothing while waiting for a computer to show up, and then worked for about a week. Then the project was cancelled. The project manager felt pretty bad about that, so kept me on for another few weeks as a makeshift "severance", as well as buying me and the other contract programmer an Xbox and a few games to go with it, which was pretty nice of him.
This sort of thing happens all the time in this industry. I suppose you just sort of have to roll with the punches with that sort of thing. Fortunately, after you've got a few years under your belt, it's not too difficult to find another job, especially if you're willing to relocate. I'm fairly lucky that way, being in an area with plenty of great companies to choose from.
I wish all the displaced devs at that company the best of luck. I've definitely been there, and know it's not a lot of fun to suddenly find yourself searching for a new job. Fortunately, studios are always anxious to grab experienced development talent, so hopefully they'll all land on their feet.