What you are getting in the mailbox is most likely a TMC (Total Market Coverage) product. These products exist only to serve as a vehicle to deliver the advertisements. They may be part of the local paper, but they are not the main product, they only exist to generate revenue by giving the advertisers deeper penetration into the market.
The real local newspapers are the ones that cover the activates of the local government, police and schools. They are the ones that play watchdog on local officials, and while they are by no means perfect, they serve a very valuable purpose that won't be easily replaced by your average bloggers. The signal to noise ratio in the blogosphere is just abysmal. Even a poorly run a newspaper provides better information than every local blogger I've read. There may be exceptional bloggers out there, but they only cover a fraction of what needs to be covered.
We don't necessarily need newspapers, but we do need journalism. The problem is that newspapers provide more journalists in more local areas than any other medium. The local TV and radio stations in my area only report on 2 things - What the hear on the police scanner and what they read in our local paper. The same is true with the "news" bloggers. We may think that online news exists independent of newspapers, but that's just not true yet.
I honestly don't care if the companies that own the newspapers die, but if the papers themselves are allowed to die then democracy will certainly suffer for it. A conversion to non-profit might serve us well while we wait for the next big thing to emerge that will successfully replace newspapers.