This article doesn't seem the best peer-reviewed article.
What reasons were given for failing the program? The published 6.9 thrust/weight ratio isn't great, but surely an underpowered fighter in quantity with domestic components is better than a fighter that can barely be produced?
It depends on what kind of underpower it is. In LCA's case, an underpowered fighter is as usefull as nothing. We know J-20 with WS-10 is underpowered, but that is not crippling any performance including super-cruise except having to use afterburner (instead of using dry thrust) to break sound barrier. However, Kaveri's 6.9 is ratio with afterburner compared to F404's 7.8. Its dry ratio would be equally below the requirement, it is an all spectrum short-fall.
I think one can tolerate many things like engine life or fuel consumption, but not the thrust and thrust/weight ratio which determines if the aircraft can fullfill its designed purpose. If I remember correctly, WS-10 in its early adoption had various problems but not the thrust.
There has been many cases that a product became outdated or lost its application when it finally reached its design parameter.
So I think that although the wiki page isn't a peer-reviewed scientific paper, it has told us more than enough as why Kaveri isn't operational and probably never.
It would seem that the IAF's decision to cancel the program has greatly hindered, or at least not helped, further domestic development of jet engines?
Not really, China has also terminated lots of programs but the knowledge built in those programs were never wasted. They greatly helped later programs for example the terminated J-9 became J-10.
I think IAF did the right thing anyone should do. IAF has every day patrol to do, they can not wait nor can they fly a sub-standard aircraft to face F-16 and JF-17.