Lets try this again... I probably should not but I really get riled up by the whole DnD = WoW argument having been an avid player of both.
DnD is one of the progenitors of hobby gaming, together with miniature wargames and map/token wargames.
In the dark ages of 1970ies these three were about all there is as far as the intelligent, involved, creative entertainment for non-athletically inclined goes (with possible exception of Bridge - but Bridge is so uncool).
These days DnD is just one branch of the wide tree of the said hobby gaming. The spectrum runs from video games including: Civ games, Sandbox games, classic RPGs, jRPGs, sport manager games, whole bunch of other genres - including of course MMOs on one hand, over fantasy sports, Euro Boardgames, Ameritrash, classic wargames, train games, ASL, dozens of different LARP styles, CMGs and CCGs to the RPGs among which DnD is just one prominent member within a subgenre of F-RPGS.
This was an amazing evolution over the past 40 or so years. There has never been such a wide and diverse industry pandering to the proverbial Geek. As Rouse said once - we have become a nation of Geeks.
What that means is that life was never better for a consumer of hobby gaming. While in the 1970ies everyone took DnD because it was (practically) only game in town today we have a choice. If you are into hard number crunching and strongly competitive play - here is M:tG, if you are into free form role-play with a touch of theatrics - here is Mind's Eye LARP. If you just want to get together with friends and goof around a vaguely fantasy game - here is Zombies or Munchkin. If you don't have any friends or can't be bothered to get them together - here is Morrowind. List a you can imagine - is endless.
What it means for the providers of the hobby gaming is that the competition is harsher then it has ever been. Even with astronomical growth in the number of potential customers over the past 40 years companies must fight very hard indeed to carve themselves a piece of the Geek Pie. To do that, much as with most other businesses nowdays, they have to find themselves a niche and specialize in it.
Again, as with most other businesses, this is done by either being strictly better then an incumbent in an existing niche, fragmenting an existing niche or finding a new niche altogether.
Beating an incumbent at their own game is extremely hard and almost never successful. This is part of the reason while DnD is still around and kicking after 40 years and why there are still lively communities playing games 20 or more years out of print. What happens most often is that the new-comer is better at one aspect of the niche and worse in others leading instead to...
... Fragmenting a niche. This method is the greatest source of diversity in hobby gaming (and in most other industries). To a degree it is great for the consumer (provides greater choice) but has its downsides (makes it somewhat harder to find co-players for any given game). PnP RPGs fragmenting by genre (SciFi, Horror, Gothic...) and within genre (Pseudo-historic, gritty, high fantasy, rules light, simulationist...) is a very good example of this process. Market is very good at determining how far can a given niche be fragmented. Innovative distribution methods (PDF publishing etc...) and communications technology (virtual tabletops, online gaming...) enable ever more fragmentation.
While threat of being supplanted assures a degree of quality and fragmentation provides the diversity and choice, the true growth is provided by inventing new niches. It is sometimes a fine line between fragmenting and inventing a new niche because even the things that are almost completely new draw inspiration from what was there before. However, good sign of having discovered a new niche is if one manages to draw in a substantial number of people who would not have been interested in the industry before.
While fragmentation happens all the time number of new niches invented in hobby gaming is fairly low and each such invention creates fairly wide upheavals.
First and most successful new niche of hobby gaming came from cross-pollination with arcade games to create computer strategy games and CRPGS from which a whole series of genres will grow spanning entire multi-billion dollar industry from GTA to (after some more cross-pollination) WoW. Many many people out there will play Morrowind or even Neverwinter Nights who would never want to spend time around the table throwing the polyhedral dice. Even more will play Starcraft that would have never had patience or interest in painting miniatures and figuring lines of sight in table-top equivalent.
Second great new niche, though one of little interest to DnD players, came from mixing of token/map wargames with pacifistic atmosphere and tradition of family games in 1980ies Germany. Starting with Settlers of Catan enormous genre of Euro Games developed, so big that its own fair - Essen Spiele - dwarfs Gen Con by a factor of 3 or so and biggest wargame convention by several orders of magnitude.
LARP can probably be considered its own new thing though it lacks massive magnitude of the other new ones. It is very hard to imagine exquisitely dressed goth girl, pretending to be Ventrue vampire princess really taking to a usual PnP RPG.
CCGs were the next big thing in the early 1990ies. It is easy to forget just how big they seemed in the early 1990ies and how dominant M:tG appeared in the industry. Lots of competitive types without patience for wargames got drawn into this niche.
MMOs are just the latest of the big new niches. They come from yet another cross-pollination between RPGs and their computer cousins. Once again, they brought a whole lot of entirely new people (who were neither computer players nor RPG players) into the mix.
In every new niche that is created, market rewards the early leaders. Just like DnD was a behemot of RPGs and perhaps even of Hobby gaming in general (from which it still collects the brand-recognition dividends 40 years later) so were Settlers (and to some extent Alea games) for Euro Games, White Wolf for LARPS, M:tG for CCGs and ofcourse WoW for MMOs.
Eventually, market matures, niche fragments and massive profits of the early years settle down to something less glamorous. It happened to every previous new niche and it will inevitably happen to WoW as well. Eventually, even the early leaders are left tending their own specialized spot within the field they have created.
Question then is - what does this mean for WotC and in particular for DnD brand and more importantly what does it mean for RPG gamers who happen to like DnD, and the answer is - not much.
DnD can not - and should not - reinvent itself into something it is not. 40 years of fragmentation have clearly defined its own niche as high fantasy, action oriented, light role playing, non-antagonistic social game with live GM for small semi permanent groups. Between that niche and a strong brand inherited from its behemot days it is practically guaranteed a solid fan base and decent profits for a long time to come. Regular edition updates every 5-10 years keep it fresh enough that it is not only played but commercially viable.
WotC as a corporation can try to invent a new niche once again (power to them if they are smart enough to do it twice) but seeing as those are once/twice per decade events it is not something they can seriously count on as a business plan. Also they can a) profit from their presence in the niches they are in already M:tG, DnD, AH... and b) get in on the fragmentation game of the next big thing with more or less success (DnD-Online etc...)
Any of these courses of action do not affect the DnD game as such and its fans.
So, what about DnD gamer then ? They still have their game as maintained by WotC. If they at any point disagree with WotCs direction, they have incredible array of choices from the old editions themselves to a number of DnD Xed clones. That is without straying even into the sub-niche of FRP in general. At the same time expansion of the hobby at large makes it easier to create new players (my girlfriend is a golden example as far as I am concerned). They have more choice and more opportunity to get a game together then ever before.
That finally brings me to DDI which I consider a great idea although I do not count on WotC being able to adequately follow through with it. It is not trying for a new niche nor for that matter for fragmenting MMO niche. It is instead attempt to deepen the DnD niche of personal RPGs. Finding group is one of the most significant problems of playing DnD. If one were able to find a DnD group with same ease one finds a 5-man instance guild (not a PuG) in WoW it is quite possible that the DnD gaming would be even more popular then it is currently. There is outside possibility of DDI being able to provide this opportunity.