"He horrified Ford fans when he said a replacement would likely be based on the front-wheel drive Taurus."
That is a bit of creative reporting, I have not seen a quote attributed to Allan Mullally saying that. They have only said the decision is 12-18 months off, and provided no direct indication of which way it would go. The other option of course is that Falcon & Mustang could be built off the same rwd platform.
Here is a less-sensationalistic article:
link
My interpretation is that a combination of a changing market and spiral of reducing sales & product development have reached the breaking point of a new set of emissions regs requiring money to be spent to re-certify the car.
The traditional "family truckster" market for station wagons has moved into SUV's, they basically only sold to fleets. That is why the 1998 AU wagon had a new front end only for the 2002 BA, and no change with the new generation 2008 FG model. Even the AU wagon was based on the same inner structure as the back of the 1988 EA model - keeping the development costs to bare-bones. Trouble is the lack of development shows, and sales move elsewhere.
In the bigger picture, there have not been more than 2 small wagons (C segment) on sale at once for probably 20 years, and no more than 3-4 in the medium class in the same time. Our market is similar to the US in that regard, wagons are now a niche segment.
On the plus side the reduced complexity on the production line is supposed to allow them to increase the number or sedans and Territory SUV's built, so they could end up selling more cars.
Personally I would like to see them try selling the Falcon G6E in North America as a replacement for the Mercury Grand Marquis. I agree it could tie in with Lincoln too. Although it is hard to see Mustang and Falcon and Lincoln all coming from the same platform!