IMO, ICANN is looking for a way to get out of this without loosing face.
There is a good chance this will hit ICANN like a boomerang, once the UN's Working Group on Internet Governance (WGIG)
http://www.wgig.org/ have had their meeting in November. From their repport
http://www.wgig.org/docs/WGIGREPORT.doc there is one main theme "international development of the internet". That doesn´t leave much room for ICANN in its current form - well, not an ICANN that base their decisions on fragile foundations such as the .xxx application.
There is a new internet awareness in the world, and the .xxx tld. will put the spotlight on ICANN and the US.