No, it's definitely not dead. There will always be guys with a cock in one hand and the credit card in the other - it just takes more skill to get the credit card hand working harder than the er . . . "other" hand
If you have a good idea, shoot the footage in a quality way, get your paysite design spot on, price options and marketing correct, look after your affiliates, etc . . then it's still possible to make good money.
But if you are planning on buying your first camcorder, getting some local corner street skank to strip off and then expecting to plan your retirement in St Lucia, then yes - consider it dead!
The current economic downturn that we are going through at the moment means there is a clearing out of the dead wood in a lot of industries (not just adult). The good quality companies (and I mean good quality, not necessarily largest) will survive and prosper and the crap companies won't.