Yes, it is still in the breech, but the extraction is handled automatically - see JCHeckler’s post, first paragraph.
Reiteration: in a standard automatic rifle, the force of the shell traveling backwards (action/reaction) forces the breech open, through mechanics the shell is ejected, and a new shell is stripped of the top of the clip, as the breech closes, the firing pin strikes the cap and the whole process repeats (same for semi-auto, it’s just the firing pin is locked until the trigger is pulled again). But the motion is reliant on the shell firing. No detonation, no blow-back, and the process stops.
In a gatling gun, the whole process is mechanical - the blow-back is not used at all in the mechanism, extraction is done purely by mechanical means, and so a shell is removed regardless of whether it fires or not. If the shell doesn’t fire at the 12 o’clock position, the whole assembly is still going to rotate (rotation driven by another mechanism, like hand-crank or electric motor/chain drive) and the shell is still ejected at 3 o’clock.
IIRC, the whole point of the original gatling gun was to create an automatic rifle. Using the blow-back in the manner of a modern auto/semi-auto was either not conceived of or too complex to implement at the time. The first Gatling gun was created around the time of the Civil War (again, IIRC) where the most technologically advanced long arms were lever or bolt-action rifles.
Oh, and as for the MetalStorm as a survival product, Trisk, remember that ROF is variable – having a mechanically simple, relatively lightweight gun with, say, 7 rounds in each of 4 barrels, that you can use as a single shot, 4-round burst, or 4-round simultaneous could be very useful in a survival kit.