More than likely, the business is unhappy with the terms of the recruiter's agreement. These guys will do all sorts of things with contractors like add a 30% commission on top of your hourly fee and bake in a clause entitling the recuiter to a bonus equal to 20% of your salary if the company decides to hire you full time.
You will probably not be offered this position any way except through the recruiter.
My advice is to continue your search, and only work with embedded recruiters who are paid hourly or salary for their services. These recruiters will have corporate email addresses matching the companies they represent.
The strange thing is that this recruiter has already placed other people at this company (according to the hiring manager). Maybe the terms did change, or the quality of those candidates turned out to be sub-par.
I have started working with a corporate recruiter at another firm, and so far it's been a much better experience.
You will probably not be offered this position any way except through the recruiter.
My advice is to continue your search, and only work with embedded recruiters who are paid hourly or salary for their services. These recruiters will have corporate email addresses matching the companies they represent.