FAQ: Why can't features created dynamically in a script be reprojected?
Why can't features created dynamically in a script be reprojected?
The current design of the software does not provide for reprojecting features in memory without writing the geometry to disk in a feature class.
This is documented in the ArcGIS Help 10.1 topic for the Project (Data Management) tool.
ArcGIS Help explains that the output of a projection cannot be written to the in_memory workspace; in_memory is not a valid workspace for the output dataset. The output must be written to a feature class on disk.