It's still alive
This has been some really bad management on Microsoft part as WP7 is still far from obsolete. Apps will still be developed for it for the foreseeable future as WP8 will run WP7 apps. So if devs target WP7 they get the whole market and as WP8 will start with no market share there is no point developing for that unless you really have to until it starts selling. For indie game devs XNA is unchanged between WP7 and WP8 so WP7 will continue to get some games.
The biggest mistake Microsoft made was having Windows in the phone name. It's just not a brand people like, they don't choose it, it comes on their PC's, they have to use it at work and if you are not technically literate it is easy for it to go wrong. Windows phone is nothing like Windows, but it is nice to use and has a smooth interface.