Yeah, the story is they discovered there was problems with the separation masters back in the early nineties. Lucas talked briefly about it at the end of this Nolan interview: http://www.dga.org/Events/2011/04-april-2011/George-Lucas-on-Star-Wars.aspx

George Lucas - "We discovered there was no print. We did a three strip in order to preserve it. They had... Fox had never bothered to strike a print of it, fifty thousand dollars, so they never looked at it. I went to retrieve it from the salt mines, the cyan was completely out of sync with everything else. There was nothing you could do about it, it was worthless."

The Wall Street Journal article on the 1997 Special Edition mention it as well: http://www.wsj.com/articles/SB854660380658056000

Shortly after production, the finished negative was supposedly preserved on a pair of YCM protective masters; the term refers to a three-strip process in which a record of each basic color component--yellow, cyan and magenta--is deposited separately in stable silver, rather than unstable dye, on black-and-white film stock that may last for more than a century (or may not; like every other archival medium, including optical disks, the YCM process has its quirks and instabilities).

But the preservation effort was botched, mostly by a failure to clean the negative before copying it, and the studio never bothered to inspect the final results. Far from constituting a single studio's sin, such neglect of corporate assets was endemic to Hollywood at the time, and remains widespread today.