Was doing some research to see what happened to this game to find out it is in limbo with no current known plans of being released. What I also found mixed in with these stories are retailers gladly accepting preorders to those that don't know any better. How is this legal?

Who is accepting?

the money from a preorder can usually be transferred to another game or preorder at your discretion should you choose to cancel the original one, though its hard for me to determine what the retailers policy is when you dont mention one by name.

If by "retailers" you mean "Gamestop", some stores will accept money for pre-order on anything. You could go in and get your copy of Half-Life 3 reserved today if you wanted too.

Just typing 'Prey 2' in Google brings up sponsored preorder offers from Wal Mart, Target, J&R and Buy.com, more beyond that if you actually click on the link.

Man I have been waiting on some sort of news for Prey 2. Still think it can potential be very awesome.