The answer really depends on how likely the issuer is to pay you.
If you believe that the issuer did pay you (mail it), then you should do what James suggested:
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Your first alternative is to appeal to the issuer of the 1099 asking them to repay the income, or withdraw or cancel the 1099.
If the 1099 will not be withdrawn, you want to report the income because the IRS will be looking for the income to be reported.
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When you contact the issuer, keep written documentation that you attempted to do so. Do as much commonication as possible in writing.
Only if the issuer says that they have no plans to re-issue the check can you go ahead and not report income that you never got. This is where documentation will be important, because you have to show that you tried to contact the issuer.
Note that when the issuer mailed you the check, it is considered "delivered", so the onus will be on you to show that you never got it. This is why you have to go the extra mile to show that you tried to get it but the issuer wouldn't co-operate.
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