There is a simple fact that unless an executive is stupid, deranged or seriously in love with their own ideas, development money follows revenue money. That is, they're going to sink in money into more of whatever is earning them profits this time around. That's why we get sequels and copies of popular games. But it can also appeal to whole categories or qualities of games as well, and if revenue money is coming from casual games, most game companies are going to read the writing on the wall and go with it. Or else we'll have Darwinian selection at work and get the same result the hard way.
My own feeling is that as casual games start producing increasing amounts of profits or games that are friendly to a casual audience such as World of Warcraft (and yes, everything short of the endgame is very casual-friendly), then we are going to see development money be sunk into casual or casual-friendly games. I have little doubt that Blizzard is going to make sure that Diablo III is as easy as possible for casual gamers to pick up and play. Diablo and Diablo II were very simple point and click games on a fundamental level. There's a reason WoW has done so well.
The flip side of that is that as hardcore games start declining in terms of revenue, the development money is going to go out of them (as well as the marketing money, but that's just part of investment costs). That's probably going to produce a vicious circle in terms of the hardcore gaming industry. Not that it is going to die, but we're going to see a definite decline in AAA high development budget high marketing budget games. The money for the AAA blockbusters will be aiming at the much larger market of casual gamers of various sorts.
In the end, no gaming market will truly die off as long as there are developers willing to code what they want to play. And the existence of online gaming stores is going to make it easier for indie developers to put out small games. But my own feeling is that most of those gaming stores will be pushing the casual games and there's going to be a small section of the store with the label 'hardcore' on it catering to a smaller niche of gamers.