I just read this thread over the course of a couple of days, it's like binging on a new TV show on Netflix. The point where you catch up to the current season is awfully depressing. I obviously know how this story ends, but still want to see what happens.
My take is that it *was* outright fraud at the start. I think they did some digging, perhaps on Alibaba, saw a thermopile sensor or whatever that was cheap and said, "Hey, we can make those!" The guy is in video editing, so a slick presentation was easy. I'm sure they intended to produce something, but once the campaign finished they started to realize it wasn't quite as easy as they had thought and BOM costs shot up quickly.
The fraud comes in because they flat out told people they knew what they were doing and had a working prototype in hand when they had nothing. Despite the image of the prototype, I seriously doubt they're getting useable images out of the sensor even at this point. If they did, it would have been the first thing they'd have posted.
As others have pointed out, the updates have been getting spaced out longer each time. This is actually a tactic some of these failed projects use, as people tend not to notice updates taking a week longer each time and at a certain point,, they just cease. By this time a lot of people have forgotten about the project. This generally isn't so much about running away with the money (as the money is normally long spent) as it is having an easy way out for people like this who get in over their heads.
Delays are to be expected in a project, even people who have produced similar products before, like Pebble. (They shipped 6 months past their deadline and just now have iOS Notifications working, better late than never though.)
As for the backers still hanging on, it takes a special level of cognitive dissonance to still support this project with nothing but a few updates, two fake videos and one picture of a dev board. Frankly, they deserve to lose their $200.