Wired seems to think so: Grounded NASA Space Plane Poised for Comeback?
There were probably more reasons for the cancellation than were publicly admitted to than just the engine difficulties. But if that’s all there was, it’s interesting to note (as others have) that SpaceX’s original Merlin-1 engine is in the same thrust class as Fastrac. And Merlin-1 has actually flown.
Plus, it doesn’t hurt that the Obama administration’s space policy tends to the commercial. Or that Obama and Musk seem to be pals.
I actually don’t expect X-34 to fly (if they haven’t been stored properly for the past ten years, the refurbishment costs will probably be uneconomical). But I sure would like to be pleasantly surprised.