SQL Server Compact is the default database in WebMatrix, there is full tooling support for 4.0 in Visual Studio 11 beta, and 3.5 SP2 is fully supported for Merge Replication with SQL Server 2012 ("LocalDB" cannot act as a Merge Replication subscriber),
so SQL Compact is alive and well, but "LoalDB" is a very viable alternative, notice that currently LocalDB requires administrator access to be installed (so no "private deployment"). So for the time being both products have their place.
Please mark as answer, if this was it. Visit my
SQL Server Compact blog