My mother pointed me towards a Newsweek article essentially promoting self-publishing as the viable model of the future to circumvent "traditional publishing" and get your work straight to the people. This article was roughly the same one I've seen several times: taking a single success story and trumping it up as a new paradigm.
Now, as far as I'm concerned, pursuing Traditional Publishing is still the preferred option. It's what I'm doing, and what I'll continue to do for some time. But will I reach a point where, failing to break through that way, I will decide I need to put on a publisher's hat? It's entirely possible. And the tools to do that, and do it smartly, are indeed out there. But it's also very easy to do it stupidly.
One key way is doing it before you really are ready to do it. It's one thing to polish and query and polish and query until you've exhausted your options and you say, "This is really the best I can make it, and no one is picking it up... so why not try this?" It's another to finish a rough draft, run a quick spell check and upload it to Lulu.
However, here's the thing: regardless of the method one uses to try and get one's work out there, cream will still rise, and lead will still sink. I think the new paradigm will more go in this direction: self-publishing will not replace traditional... but it will become more accepted as a path to traditional publishing.
Just like youtube has not killed the TV or Movie industry, nor has mp3 sharing killed the music industry, the traditional publishing industry will not be killed by self-publishing in the future. But, just as these new tools allowed people to find an audience they wouldn't have before, and through that, find a new path to success.
Up until now, the Conventional Wisdom is that by self-publishing, you've screwed yourself out of your chance for traditional publishing. However, there are enough success stories out there to prove that isn't true: if a publisher thinks there's a profit to be made off your work, they'll go for it. I think in the coming years we will see more and more success stories like that.
But only if the books are any good to begin with. Cream rises and lead sinks, after all.