I think the reason Pinball is dying out is purely the cost of playing it.
I mean you pay 50p for three balls. Or 20p for three lives in most other arcade games.
You don't spend much time around gamers, do you? I don't know of any gamers who spend the time thinking about how much a 'life' costs them. For gamers, it's about fun, convenience, and hanging out with friends.
Pinball fails on the last two qualities. A pinball machine is outside the budget of casual gamers, so most people have to go to an arcade to play pinball. On the other hand, a gaming console sits conveniently next to their TV at home, allowing them to game whenever they have time.
Pinball has no cooperative component; it's a "single-player" game. Looking at the popularity of multiplayer and online games, I'd say gamers these days value an experience in which their friends can participate. They don't get that with pinball.
I personally love pinball, but it doesn't provide what contemporary gamers want.