From I09:

The idea ... was a forgone conclusion, we wanted him in the movie. The problem was his character dies onscreen in one of the Trek films and because we decided very early on we wanted to adhere to Trek canon as best we could. ... The required mechanations to get Shatner into the movie would have been very difficult to do given a story where he was himself and also give him the kind of part he would be happy with.

Read the whole piece here.

This totally makes sense, but making sense never stopped Star Trek before.  Trek has, in the past, been pretty liberal in its continuity.  Scotty showed up in Next Generation, and Klingons changing their look pretty significantly through the series.

There was even a scene written with Shatner for Star Trek that would overcome many of the continuity issues.

Again from I09:

Orci: We wrote it, it was in the script.

Kurtzman: The very last scene when Spock and Spock meet each other, finally. And elder Spock is convincing young Spock that he couldn't interfere, because it would have diverted [Kirk and Spock] away from their friendship. And that their friendship is the key to the whole sort of shebang.

Orci: He gave him a recorded message from Kirk.

Kurtzman: He [elder Spock] said, "Don't take my word for it." And he handed him [younger Spock] a little holographic device and it projected Shatner. It was basically a Happy Birthday wish knowing that Spock was going to go off to Romulus, and Kirk would probably be dead by the time...

Orci: It turned into a voiceover, at the end of the movie.

Kurtzman: So It was a nod too, but it ultimately felt like a cameo, in a way that wasn't.

Orci: I still liked it [Laughs].

Thats one way of doing it I guess.

So there you have it.  This is what we would have seen had Shatner been in the film...well, this is one way it could have happened anyway. 

Stay tuned, Mr. Abrams is hinting that we might be seeing the Shatner in a future Star Trek adventure.