KOF XII - so. pretty.

Kotaku reports that KOF XII is NOT cell shaded. All the sprites are hand drawn. Good grief.

from the Kotaku article:
The original character drawings were modeled into 3D. Those 3D models were then rendered back into 2D. That way the 2D characters could have a greater depth of motion. Since the 2D models were devoid of color and details, artists went through each character, background, image and painstakingly added colors and drew in details pixel-by-pixel on a tablet PC.
Read the rest here

edit: We have annoyed Brandon @ Insert Credit. I think we all hoped for 2D but it's just nice to hear it confirmed.