Now here is something I do know about.
Wayne, the author, fully intends to finish the novel, and does not want Square to know about it until it is fully completed and ready for the shelves. He is nearly halfway through the novel, somewhere around Tyrano Lair if I am not mistaken. This project is something that we believe won't be C&D'd because it is a different medium, and publishing a book is much harder than releasing a free video game to the public.
I can assure you that the novel will not be submitted to Square without it being looked over and pondered multiple times. Every aspect of the game and story is thought about two fold and then argued over in the forums.
As for being published, that is completely up to Square. We hope that they will understand that this novel can make a profit, and breathe new life into the series. Ulitmately I hope that even if the novel is not published that it will be the final bump into getting Square to make the next installment.