Here is the official reason....
http://www.n-sider.com/gameview.php?gameid=160&view=dev
It has
always bugged me that R&D1 didn't play a bigger role in production. Apparently they were too busy making WarioWare Inc. at this time to work on such an important project. This was Wario's big break to the home console. His first (and only) 3-D game. It should have been top priority, since it was their series, and it had reached a zenith in quality with Wario Land 4 (and WL3 before it). But no.... it wasn't a grand collaboration of two great studios. It was treated like an afterthought.
Wario World had plenty of production time, it was delayed more than once. The real problem was Treasure having to constantly rebuild and water down the game.
Dig through the endless old previews/demos, you'll find a mass of cool designs, concepts and areas that were cancelled/changed. I want to create a thread for this.