Valve's Fairy-Heavy Action RPG Revealed

During an interview with PC Gamer, Valve's Doug Lombardi, Gabe Newell, and Erik Johnson revealed that the company was once working on an action RPG that had flying fairies and an Arx Fatalis-like spell system. Apparently it didn't make the cut:
Erik says it was a weird prototype game that had spells (based on movement and mouse gestures. It was so bad.)

(That was a useful failure to us,) says Gabe, (because it was so clearly dumb that it made us say, '˜OK, what are we actually good at that we can do instead?')

It's as hard to imagine Valve doing an action fantasy game about flying fairies as it is to imagine them making a truly bad one. Gabe is merciless about it, though.

(It was so bad,) he says, (you wanted to ask yourself: '˜How could we make a game that was this bad? And how should we make a game?' And we said we should focus on what we do really well, so why are we doing this game which was kind of a. it wasn't really an RPG. it was this action fantasy sort of role playing game that had no story. And then we said '˜OK, that's so horribly wrong. What we should focus in on is AI and playing in co-op, and that's the interesting opportunity.' That was where Left 4 Dead came from.)