That turned into the game Survivor Zero, which has been in progress ever since. There hasn't been much happening with it except for some concept art but they started releasing screenshots as Day Z got popular.
IIRC, Survivor Zero is targeted more toward the single player survival aspect but if it ever gets completed, it will have an open randomly generated world like Minecraft, day/night cycles, randomly generated towns and I think they said all houses will be intractable. It will also be more of a sandbox than ARMA II is. Think Garry's Mod zombie survival.
I'm still pretty surprised no one made a mod like this earlier. When discussed, most people say you need to create an engine from scratch with huge world and it can't be loaded into memory and you need to render zombies and yada yada. No one had the idea to use an existing world like Chernarus. Except for rocket.