"I think the trick for a successful Dune RPG is to focus on Arrakis..."
Could not disagree with this concept more. The reason I like the idea of LUGs "Dune: Chronicles of the Imperium" is the last part of the title. Dune is univseral in scope, I think it really silly to limit the game POV to one single planet. And the LUG was a good start, I only wish they had been able to at least put out the "Federated House of the Landsraad" supplement.
As to what happend to the line; LUG was bought out by WOTC just before the release date. I believe part of the contract was that WOTC would release the core book for the game as is...then WOTC planned to go into their own version. However, after the project was started Hasbro put out an order to drop the Dune line as the company would no longer be carrying any licenced properties. Which is unfortunate, as I feel the line would still be going strong, probably into at least 2nd edition. As to a system that I think would be perfect for the line, I have to apoligize to Mongoose as my vote goes to the Chronicle system (what is currently ASIAF rpg by Green Ronin.) It has an excellent Housse design system as part of the basic rules.