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That would be my guess as well. So, back to the original question (refined somewhat).
Would an improved 400mm f/5.6 IS selling at approximately $2500 kill sales of the 400mm f/4 DO lens? Or could they co-exist?
I don't see why they couldn't exist. Canon makes a 300/4 IS and a 300/2.8 IS, and people are willing to pay 5 to 6 times the price for the 300/2.8 because it offers things that the 300/4 does not, namely an extra stop of light and better image quality. Similarly, the 400 DO would offer an extra stop of light and much shorter minimum focus distance, and it would do so with minimal additional weight compared to a 400/5.6 IS. I suspect that people who value being able to shoot at f4 with the mobility and ability to easily hand hold that a 4 pound lens offers would still be willing to pay a premium for those capabilities just like people who value what a 300/2.8 can do are willing to pay a (high) premium over what they would be paying for a 300/4.
Further, the DO has never been a high production/sales volume lens. Those who have bought it would still likely value what it offers. If a 400/5.6 IS pushed the price for a 400/5.6 to the $2500 range and narrowed the price difference between the 400/5.6 and the DO, that might actually push more people to spend the extra money for the DO than the number of those who now choose it over the current 400/5.6 at around $1200. Also, while many turned away from the DO for years because of its price relative to the prices of other Canon long glass, with the dramatic price increases of the Mark II super telephoto lenses, the 400 DO is now looking like a long lens bargain.
That said, I don't really expect that we will be seeing a 400/5.6 IS at any time in the near future. While there are many who would love to see a 5.6 IS, the current lens is (with the 100-400 and, perhaps, the 300/4) the loss cost compact alternative to pricey long lenses. I suspect that a $2500 IS version would cost Canon quite a few sales that it now realizes with a $1200 lens. The current lens allows people with a more limited budget to combine it with a 60D or a 7D or even one of the Rebels for around $2000 or less, and, while that combination may not be as capable as a $10,000 or $20,000 camera-lens combination, it will still get them most of the shots that they want to get. Additionally, the 400/5.6 is, for many, a gateway to lenses that cost 8 to 10 times more. It is hard to see how eliminating that gateway would, in the long term, be in Canon's financial interest.