I recently got asked about the future of SQL Server Compact, and in this blog post I will elaborate a little on this and the present state of SQL Server Compact.
Version 4.0 is the default database in WebMatrix ASP.NET based projects, and version 2 of this product has just been released.
There is full tooling support for version 4.0 in Visual Studio 2012, and the “Local Database” project item is a version 4.0 database (not LocalDB). In addition, Visual Studio 2012, coming in august, will include 4.0 SP1, so 4.0 is being actively maintained currently. Entity Framework version 6.0 is now open source, and includes full support for SQL Server Compact 4.0. (Entity Framework 6.0 will release “out of band” after the release of Visual Studio 2012).
The latest release (build 8088) of version 3.5 SP2 is fully supported for Merge Replication with SQL Server 2012 (note that "LocalDB" cannot act as a Merge Replication subscriber), and Merge Replication with Windows Embedded CE 7.0 is also enabled.
On Windows Phone, version 3.5 is alive and well, and will of course also be included with the upcoming Windows Phone 8 platform. Windows Phone 8 will also include support for SQLite, mainly to make it easier to reuse projects between Windows Phone 8 and Windows 8 Metro.
On WinRT (Windows 8 Metro Style Apps), there is no SQL Server Compact support, and Microsoft is currently (doubt that will change) offering SQLite as an alternative. See Matteo Paganis blog post also: http://wp.qmatteoq.com/using-sqlite-in-your-windows-8-metro-style-applications
So, currently SQL Server Compact is available of the following Microsoft platforms: Windows XP and later, including ASP.NET, Windows Phone, Windows Mobile/Embedded CE.
On the other hand, SQL Server Compact is not supported with: Silverlight (with exceptions), WinRT (Windows 8 Metro Style Apps).
So I think it is fair to conclude that SQL Compact is alive and well. In some scenarios, SQL Server "LocalDB" is a very viable alternative, notice that currently LocalDB requires administrator access to be installed (so no "private deployment"). See my comparison here.