Their Github is certainly active still...but it only looks like only two of the "original authors" have committed to it recently.
A primary problem I see with that approach would have been deciding which to use in the first place, which may have been seen as taking a 'kingmaker' attitude towards existing projects ("we're gonna bless you with a lot of money and attention") (though that's probably reading a bit more in to it than it merits).
Also, the decision process would have required a lot of code review of existing projects to determine which ones were solid (well-architected, easy to modify, well-documented, secure, etc). to begin with. This takes a lot of time and effort, though a submissions process or contest could have been set up to help make that more efficient.
Possibly going further, developing a federation model alone, then using the money to work with a variety of the top open source social network projects to integrate in to the newly developed model would have been a possibly stronger approach. They're not limiting things to one project, and the value is more quickly spread around to a multitude of projects, and therefore users, regardless of platform. Not everyone likes or uses Rails, or PHP, or .Net, or Python, or whatever), but everyone can use RSS, OAuth and other common standards.
Diaspora had a chance to have a huge impact on the social networking scene, and blew it. Obviously that's from my perspective. They still have the opp of putting out a nice Rails-based social network, but I don't think (given the current state and pace) it'll ever be much more than that.
Could you please tell us some of your thoughts in more details?
(I've cloned a repo, read a bit, but as I've never used Ruby/Rails I just couldn't get any opinion on the code quality)
Facebook reached critical mass and now the majority of the people who keep them going are the same majority that don't see what all the fuss about HD is, don't want to buy a computer more than once per decade, are still satisfied with WoW, and think the current console generation is just fine as it is for another five or ten years.
In other words, they are people with minimal demands, needs, and expectations. They're happy with what they have now and aren't likely to move to the next big thing, like the rest of us always have.
Diaspora always had a significant uphill fight. Maybe they can use the project to bootstrap another effort in another arena at some point, but I think this is all a big effort to stand on principal. Not that there's anything wrong with that. Principal is important. It's just that principal isn't going to displace the reigning king. We will never ever see Diaspora Connect fueling the "likes" and "forums" of the web, everywhere you turn. And, unlike other services, social networking is one that really does necessitate a critical mass.