What the hell happened?

So I was gungho to start an offseason internship at a nice boutique 50 man shop with an international presence. I was told that I would hear back about whether I had an interview or not and at that point it seemed based on the principals comments that I essentially had the position. I call back and they say deal flow is too low, off season is not happening this year, apply for SA. Has it really dried up that much? I have my back up, a tiny 10 man shop, principles are all ex-BB VPs, analysts are Ivy league, good deal flow and if I was brought on board I would be the only intern, I get along well with the principals, etc. Do I go there or start calling bigger boutiques and MMs. My GPA a 3.3 in the hard sciences, which definitely is killing me as is the nontarget status of my school. Any suggestions as to banks? I prefer NYC, Westchester, Jersey and SW Connecticut, but would not be opposed to Miami/Ft. Lauderdale/West Palm, Boston, DC or Chicago, if it comes down to it I'll go anywhere.