It looks like they both died at the end of Annihilation... Kahn had a big dragon fly out of him leaving him a saggy pile of skin (?) and Shinnok turned into a fold-up puzzle thing and vanished (?!)

Kahn-He's dead. Dragon flew out of him and all that's left is rotten skin.
Shinnok-Still alive. He just got "packaged" off to the Netherealm.

yes it has been confirmed that shinnok will play a big role and shao kahn dies early like in the game buy Adoni morphis ( quan chi ) and bruce loche ( hope i got his last name right ) who plays shang tsung. oh yeah liu kang dies as well as sonya and jax. sub-zero is a main character now and a new character named ash will tell of scorpions past as he too is now a big role.


( got all this info from )http://www.spevack.net/mkr/mk3movie.html