From the Guardian [gf]:
The Arsenal winger has always said that he could not take his place at the finals for granted, but he did not see Capello's rejection coming. The 21-year-old, the surprise inclusion in Sven-Goran Eriksson's squad for the last World Cup in Germany, has been left devastated by his omission, according to a source close to the player.
"I am very disappointed not to be included in the squad going out to South Africa, but completely respect Mr Capello's decision," said Walcott. "I would like to wish the team the best of luck and hope they have a really successful tournament."
It's a surprise, but not so shocking that I've had to change my pants. Theo's had a year filled with injury and when he has been fit he has not looked sharp. Still he's got pace and the ability to break open defenses, especially late in the game. If England blow a few leads late on, the way they're prone to, this might be a move that Capello regrets.