Basically the problem was that even though they initially pitched the idea for a $400,000 game , they never actually had a game which needed $400k to complete. They deliberately started from scratch with their development once the kickstarter ended in order to film the ENTIRE game-making process (they didn't even have a story idea hammered out!) What happened was that when the game's kickstarter inflated from $400,000 to $3,200,000; they scaled their expectations to match that budget. It's not as if they had a nearly working game which cost $400k with 2.8M worth of extra crap tacked on.
When the game earned 3.2M they made a number of decisions which for better or worse changed the way they had planned to make the game. These changes inevitably inflated the cost of the game. Some of these changes were:
1. Deciding to release the game on PC, Mac, and Linux instead of just PC.
2. Having a DRM free option for PC.
3. Going from English only dialog to English, French, German, Italian, and Spanish
4. Going from text-only dialog to fully voiced English dialog.
5. Designing their own game engine from scratch for the game instead of using a rented engine.
6. Going from a dev team of 4-6 people to one of 10+ full time people as well as several part time/contractors/interns/etc.
7. Extending the development timeline for the game from ~6 months to 1.5-2 years.
8. Rewarded Two-player productions (the company responsible for the documentary) with much more money than they had originally planned to make the documentary for (instead of 100k it was something like 600k, forget the actual number)
In short, the game that they will provide will be much, MUCH superior to the $400k game that they originally intended to provide. I think that when the kickstarter earned so much more than it was planned to need, Tim Schafer turned this project from "short low budget adventure game because I want to relive my glory days and make an adventure game again" to " Poster boy showing that adventure games can still be great in this day and age, that there's still a market there that publishers avoid at all costs, and Double Fine's biggest hope to finally gain independance from publishers and make the games that they want." Tim and Double Fine really really need this game to be great because it could potentially be the first step to them becoming independant as a studio and not needing publishers anymore. If you've been paying attention to Double Fine lately, they've been trying their hardest to buy back the rights to their games from the publishers who made them. They really really want to be completely independant, and this game is crucial to that plan.
With all that in mind, Tim came up with a great idea and went a little overboard with it. And now that all the ideas are more or less fleshed out, Tim doesn't want to have to scale back this game which could be his magnum opus. He went over budget, yes, but he's still going to deliver the game that the kickstarter funded, without asking for anymore money from those who decided to support him in fulfilling his dream. He's funelling money from the proceeds of other double fine games (Brutal Legend Steam version, Humble Bundle), and doing an early release version of the game to try and bring in some more revenue.
Rest assured that the game which will come out will be much MUCH bigger, better, and more polished than the theoretical game that was pitched for $400k. It will also be much better than even the $3M game, because Double Fine is basically re-enforcing it with $3-4M of THEIR OWN MONEY. And it WILL come out in full, because Double Fine's reputation, future, and legacy depend on it. If this game never comes out its because Double Fine went bankrupt trying to get it out, which I don't see happening at all.
Also, Double Fine is being completely transparent about all their troubles because they want to show what really happens during the development of a game. If this game had been published by a publisher, this game would either a) have been canned, or b) would have come out with us none the wiser about the budget issues they had c) the devs would delay the release of the game (read: they needed more money to pay their devs to finish the game) so I dont think that games going over budget is unusual or even uncommon, it's just never been so transparent before.