From the Project Morpheus blog:
The root cause is still under investigation, but what we do know is that at the start of ascent we lost data from the Inertial Measurement Unit (IMU) that supplies navigation updates to the flight computer. Without this measurement the vehicle is blind and does not know which way it is pointing or accelerating. Since this data is needed to maintain stable flight, the vehicle could not determine which way was up and began to tumble and impacted the ground about 50 feet from the launch site. No one was injured, no property was damaged besides the vehicle and we have been able to recover significant data, which will give us greater insight into the source of the problem.
We have said it before and will continue to say, this is why we test. We have already learned a lot from this test and will continue to learn as we recover data and evaluate the hardware. No test article should be too precious to lose. A spare vehicle was planned from the start and is just a few months away from completion. The basic development approach is to quickly build, test and redesign the hardware to achieve many design cycles and maturity before building flight articles.