Does anyone know what's going on with this project? I heard that the Yunnan government ran out of money, and in September 2011 the project was put on hold. Any idea if and when it will resume, and when they are expecting it to be completed?

Good question; I was wondering the same thing with the proposed Kunming-Vientiane (Laos) high speed railway that will also connect to Bangkok and eventually to Singapore via Malaysia. Construction was supposed to have started last year and be finished by 2015, but political troubles and resistance in Thailand for the Thai-leg of the project, the Wenzhou crash, corruption concerns and heavily indebted government that is no longer able to borrow as easily from local banks have all (likely, since I'm not sure) put the brakes on that and the Dali project, at least for now.

I think the Dali project makes more sense than the Lao one for the time being (and should be a priority); it will be a long time before all the missing connections are made and political issues overcome in the case of the latter, so instead of only 3 years, it might take 10 years before we can expect to travel between SE Asia and Kunming, and the rest of China via high-speed rail.