There are several reasons.
Design work on the An-70 began in 1983, and the decision for production was made in 1988, when Ukraine was still part of the USSR. At the time the USSR was broke and funding was minimal for all military programs.
In Dec 1991 Ukraine became an independent country and the Antonov Design bureau that designed the An-70, the Aviant plant that was to manufacture it, as well as the Ivchenko-Progress Company that designed its engines all ended up outside what is now Russia. These three companies are not Russian but Ukrainian. Even the wings were built at TAPO, in Uzbekistan, now also an independent country (outside Russia).
The top brass of the Russian Air Force were upset at Ukraine because at the break up of the USSR, the bulk of the IL-78 Air to Air refuellers were based in Ukraine, which kept them. There were also also other conflicts regarding the Russian Black Sea fleet, based in Ukraine.
But until then, the broke Russian were still funding the program, although minimally. The first prototype was ready for flight in 1994, and on its fourth test flight, it crashed after having a mid-air collision with an An-72 chase plane that was filming it. Two years later (1996) the ADB had converted the static test airframe into a flying prototype to continue the flight testing programme. The certification flights continued until 2001 when the sole prototype lost the #1 and #3 engines at night, right after take-off, at 130 feet AGL. The mishap occurred right after the An-70 had taken on 38 tonnes of fuel at en en-route stop to Russia for cold weather tests. At first fuel contamination was suspected but it turned out both engines were shut down automatically by the FADEC, and to compound the problem, one prop failed to feather and windmilled. They put it down in a snowy field, straight ahead. The prototype was fixed within a few months but work was needed on the engines, especially the FADEC (sounds familiar?)
It is around that time that Russian Perm Aircraft engine company began to work on a new engine for the Ilyushin IL-76 aircraft, the PS-90. Russia was broke and some High ranking Russian Air Force Officers could not understand why Russia had to fund a 70 or 80 million dollars Ukrainian aircraft capable of hauling 47 tonnes when one could buy brand new 50 to 60 tonne capacity IL-76s for 15 to 30 million dollars (India took delivery of 6 IL-78 tankers in 2003, for somewhere around that price and China ordered 38 of them, a sale that Russia eventually blocked)
(Recently India ordered 3 IL-76 based A-50 AWACS, the first of which was delivered last just month:
Photos: Beriev A-50EI Aircraft Pictures | Airliners.net
Those cost a fortune, but the price was due mostly to the AWACS modifications and electronics rather than by the IL-76 on which is it mounted)
Then in 2004 there was the Orange Revolution in Ukraine, with talk of Ukraine wanting to join the EU and worst, NATO. Finally in 2006, Russia which was the main customer with 165 An-70 orders pulled out. By that time what Russia was doing is not to buy new airlifters at all, but they began a re-engining programme of their 250+ fleet of IL-76/IL-78/IL-82/A-50 aircraft with modern Perm PS-90 engines and EICAS, a handful of which have been completed so far. Here are pictures of one of them.
Photos: Ilyushin Il-76MD-90 Aircraft Pictures | Airliners.net
Photos: Ilyushin Il-76MD-90 Aircraft Pictures | Airliners.net
Photos: Ilyushin Il-76MD-90 Aircraft Pictures | Airliners.net
This conversion cost them probably under 30 million dollars each (4 engines, plus a little work) In 2006 and 2007 Ilyushin has continued delivering brand new IL-76s, of a 50 tonne capacity for about 50 million dollars a piece. Russia is now in the process of restarting a new Ilyushin production facility at the Ulyanovsk Aircraft Factory, a version they call the IL-476. It will be 100 per cent Russian, and not Ukrainian.
That is why Russia is not buying the An-70.