+ericu, aka Mr File System
The file system API has been retired but that is only from a standardization perspective. It is clear the current form of the spec won't be standardized so it won't be pursued. Other browser vendors are looking at alternatives, and there may be some alternative file system kind of API that can be standardized in future.
In the meantime, we need a file system API like this within Chrome. Apps use it, and we use it internally as well. We'll be keeping the existing API.
When / if some alternative gets standardized we'll think about what to do with the current APIs. I imagine the worst case is that we'd make a polyfill available and inject it automatically when apps needed. Breaking apps is something we'd avoid at all costs.