Dhalsim was never digitized into the game because of a number of issues. Along with concerns that the actor would not being able to perform the session, they believed that the players wouldn't like the idea of Dhalsim wearing the lab suit from the movie instead of his original design. Along with this there were worries that the actor wouldn't feel comfortable wearing that costume.
In the end, Dhalsim had a small role in the movie so they decided it would be acceptable to simply cut him from the final game.