When asked whether there was a chance of seeing Static Shock in "Teen Titans,” Lobdell replied, “Nothing would make me happier.” However, he said "legal issues" prevent the characters from joining the title.
So in other words, they have may lost the rights to use characters such as Static or maybe they've run into disputes with McDuffie's estate and the other founders of Milestone such as Christopher Priest. It doesn't really any indicate either one, so for now I'm only speculating on the matter. As Avi Green notes in his post, it didn't seem like DC cared much about Static in the first place, if this is how they treated him. Plus DC didn't treat McDuffie very well at all and fired him from the Justice League of America title in 2009 after he complained about all the restrictive editorial mandates placed by him on the old "Lying in the Gutters" column from Comic Book Resources. Unlike say Rob Liefeld, I have more sympathy for McDuffie's situation considering how Didio doesn't let anyone save Geoff Johns and Grant Morrison (who recently quit DC to work on more independent projects) have free reign on the universe, which is especially apparent in the rebooted new 52 universe.
Now my exposure of the Milestone characters themselves don't actually come from the original comics, believe it or not. Rather, my exposure to it comes from the cartoon Static Shock which aired on Kids WB in the early 2000s. It was an enjoyable superhero cartoon and a lot of fun. The title character's adventures also crossed over with DC's Justice League cartoon on a regular basis, years before the comics universes were merged in a contrived crossover within the pages of Justice League and the John Stewart Green Lantern was somewhat of a mentor to young Static. The cartoon did occasionally deal with racism and race-related themes (not surprising given that the main characters are African-American) but it wasn't of the "blame whitey" variety that you'd see on BET's short-lived Black Panther cartoon. It was usually done in a more creative, honest matter than what you'd see a lot of today's comics creators do.
Also, one more question I have: if DC has indeed lost the rights to the Milestone characters, then what does that mean for characters like Static, Icon, and Rocket that appear regularly on the Young Justice cartoon? Will they be phased out? Icon is a prominent member of the show's Justice League and Static and Rocket are prominent members of the main Titans/YJ team. It should be interesting to see how that plays out, assuming that DC indeed has lost the rights to the characters.
UPDATE: See this for more clarification.