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At the time when it was first being developed, that was the plan. If the project were to be restarted now, it would be set on Oddworld, although not on Mudos.
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I think it was supposed to be set in Oddworld originally but Lorne left the art department to their own devices for a while and the style became a lot less Oddworld and more human. So Lorne decided it wouldn't be set on Oddworld at all.