I'm a little surprised this hasn't become an accepted practice yet... Tons of game developers fail to complete their projects for one reason or another, and the open-source scene for PC games is practically non-existent (actual games, not middle-ware). I wouldn't expect publishers to ever open-source unfinished games, but for indies that don't need to protect their IP, it seems like it would be a pretty great move to open-source your code and assets under a non-commercial license, if you can't complete a relatively mature project.

It seems to me that it would be beneficial to everyone involved... but maybe I am missing something.

I wonder why this isn't their first reaction. The game looked reasonably well fleshed out in their latest videos (they'd even been releasing demos and alphas.)

Is it possible Winterkewl are holding on tight to the IP for some reason?

I guess, but an unfinished game and source is pretty valueless. People who work on an unfinished think there work adds up to something valuable (an engine, some art) but I have seen people try to sell unfinsihed projects many times and they are almost never valuable. And they are only valuable when they come with a team that is passionate about continuing to work on them.