What happened to the Foveon sensor is that Sigma adopted the technology early on, but other camera companies were reluctant to do so.
That state continues to this day. Sigma continues to evolve cameras, currently offering an SD-15 DSLR, and the fixed-focal length large sensor compact cameras DP-1 and DP-2.
However recently Foveon technology seems to have been on the upswing. As another post mentioned, Sigma seems close to releasing a greatly improved Foveon sensor in the SD-1 with even better noise handling, and resolution that exceeds pretty much any consumer DSLR today (though not medium format systems). The new sensor is known to be roughly 46MP, which translated into Bayer equivalence means around 30MP of roughly equal detail to a Bayer image - that is to say, if you took the 15 million pixel output image from a RAW converted from an SD-1, and upsampled it to 30MP it would look identical to a 30MP bayer image. Only it would also lack color pattern issues a Bayer sensor might have, and have better falloff in detail. Foveon sensors have traditionally held a large dynamic range, and also very low noise at lower ISOs, but since the new sensor seems so different we need to wait to see what the characteristics are like going forward.
So what has changed for the better that allows for such advances? It' partly because we are seeing the result of steady R&D work at Foveon, but also because Sigma bought Foveon and have them focused now wholly on producing better large camera sensors. Before Foveon was trying to see what segment of the photographic market might make a good customer for the technology and as a result was a lot more scattered in goals.
Not only are the results of this focus seen in really significant resolution increases from the sensor over previous generations, but also that they technology was selected to go to Mars by the ESA:
Sorry for the rough translation, I cannot find a single other source for that news.
So basically what's happening for Foveon technology is that it's still evolving, just at what was seemingly a slower pace than other sensor technologies but what may end up being a leap ahead of them. We need to see what the new sensor can do to see where the state of Foveon technology really sits these days, so really this is probably a great question to review in three months time.
If you really want more information on just how it is a 15 million Foveon output image can contain as much more more detail than a 30 MP bayer output image, read this article comparing a 4.7MP Foveon sensor to a 12MP Bayer one (the Canon 5D):
Especially note color chart resolution and ponder this interesting question - a 15MP bayer camera has only 3.75 million photosites detecting red. So if you put a traditional red filter like B&W photographers like to use, all the other sensors are blacked out and you are now shooting with a 3.75MP camera. Meanwhile a 46MP Foveon sensor with three layers of 15 million photosites detecting red/green/blue (roughly) does not care what filter you put in front of it, every pixel of output will hold data from 15 million different red sensors.
That might seem an arbitrary case, but what about tone shifts in something like a red car - or a blue sky.
For those REALLY wondering where Foveon is going at a technical level, read the latest patent from Foveon basically covering the fundamentals of what is probably the SD-1 sensor:
One last thing of note is that some form of the Foveon technology, even if not the Foveon design exactly does seem to be the future of imaging - patents have started to arrive from Sony and other companies also looking at ways to layer sensors.