The Constellation program was proposed in 2004 as a program to return humans to the Moon through the development of two new rockets and a whole slew of new hardware. Unfortunately, the administration at the time neglected to allocate much funding for the program, which forced NASA to cut funding to a lot of other programs to operate Constellation with a shoestring budget (even increasing NASA's budget to what amounts to occupying Iraq for about a week was apparently too much). It didn't help that the Augustine Commission had a less than stellar opinion of the program.
Given all its problems and the current economic climate, it isn't a terrible surprise that the current administration proposes to cancel the Constellation program. It's sort of a mixed bag: it could give way to cheaper and/or better ways of exploring space (one thing I would like to see is staying in space and not just planting flags: it would be great if there were more extensive but cheaper ways living in space than with what we have with the International Space Station), and it could expand the market for private space launch companies such as SpaceX. On the other hand, it is not clear at all if other approaches to space exploration would indeed be much superior to the Constellation program (not to mention how unlikely any such program would be proposed in the near future), nor is it certain that private companies can launch manned spacecraft anytime soon, in which case the United States manned spaceflight program may have to rely on Russian rockets for a long time.
Perhaps China or Russia are the places to look for most of the exciting developments in manned spaceflight in the foreseeable future: there will be a period of time when they are the only countries that can launch manned spacecraft. This was expected ever since the Constellation program was announced, with at least a five-year gap between the retirement of the Space Shuttle and the launch of the first Ares I, but the gap could last even longer with the program's cancellation. Or maybe the private companies will succeed in following an optimistic schedule and the gap could end up being much shorter. Who knows?