In my experience, people make this argument for one of three reasons.
This first is that some people simply dislike change. For this group, the conviction that the world is getting worse merely attaches to whatever seems to be changing. These people will be complaining about kids today and their baggy pants and their online bookstores 'til the day they die.
A second group genuinely believes it's still the 1990s somewhere. They imagine that the only outlets for books between Midtown and the Mission are Wal-Mart and Barnes and Noble, that few people in Nebraska have ever heard of Amazon, that countless avid readers have money for books but don't own a computer. This group believes, in other words, that book buying is a widespread activity while internet access is for elites, the opposite of the actual case.
A third group, though, is making the 'access to literature' argument without much real commitment to its truth or falsehood, because they aren't actually worried about access to literature, they are worried about bookstores in and of themselves. This is a form of Burkean conservatism, in which the value built up over centuries in the existence of bookstores should be preserved, even though their previous function as the principal link between writers and readers is being displaced.
I think that Clay's probably right that the most traditionally profitable sector of bookselling -- mass-produced bestsellers -- is going to keep on migrating onto the web (that's where I get most of my mass-produced bestsellers, certainly). But I also think that there's something to be said for physical street-level stores de-emphasizing those products in favor of the simultaneous pursuit of the top- and bottom-end of the markets.
On the bottom-end of the market, there's the Espresso book printer, as currently in operation in the wonderful Harvard Bookstore in Cambridge, Mass. This thing will print any public domain book that Google has scanned, in about 4 minutes, for $8. The margins are usually pretty good (they're lower on longer books, and a fat-enough book could be a money-loser, of course). And there are no warehousing, ordering, shelving or other expenses associated with them. Also, it's unlikely that we'll have them in our houses anytime soon (though we may get them at the library and community center).
At the Harvard Bookstore, they have someone who spends the day mousing around on Google Book Search, looking for weird and cool titles in the public domain to print and shelve around the store, as suggestions for the sort of thing you might have printed for yourself. This is a purely curatorial role, the classic thing that a great retailer does, and it's one of the most exciting bookstore sections I've browsed in years. And even so, there's lots of room for improvement: Google Books produces the blandest, most boring covers for its PD books, and there's plenty of room for stores to add value with their own covers, with customer-supplied covers (the gift possibilities are bottomless), and so on. I can even imagine the profs across the street producing annotated versions -- say, a treatise on Alice in Wonderland with reproductions of ten different editions' illustrations and selling them through the store's printer and shelf-space, restoring the ancient bookseller/book-publisher role.
Of course, most of the mass-produced catalog will probably end up in the print-on-demand catalog some day, and stores will be able to fill those orders, too. But if you already know what book you want, why bother going to a store? (Unless you're in too much of a hurry to wait for the mail).
On the other hand, there's plenty of ways that a physical store could offer added value on mass-market titles: localized covers, signed books, high production-value gift editions, a point-of-sale "donate to our neighborhood schools" kiosk that lets you print a book on the spot for a classroom that's requested it...
At the other end of the scale, the high-end, there's the book-as-object phenomenon. Taschen and a few other art-book publishers have figured out how to make a market out of this, and what's more, they've aggressively pursued non-bookstore retail channels (Urban Outfitters, Anthropologie, etc) where the margins are lower, but the foot-traffic is much, much higher.
So yes, there's something really beautiful, and commercially compelling about a shelf or table full of books that are themselves beautiful -- beautifully made, beautifully presented. But what if there were more to it? What about hand-made books? Limited runs? The kind of thing that you mostly see today on the web (because the audience is spread too thin for physical retail to make sense), where they show poorly and make a less compelling case. Books in crazy trim sizes -- huge books like the Little Nemo treasuries, or even the gargantuan Bhutan book.
These are very expensive to inventory, and that suggests that they should probably be consigned, rather than sold (indeed, booksellers could serve as fulfillers for direct orders taken over the Web, since they're apt to be closer to the customer).
Both of these ends of the market are ripe for heavy localization, curated to suit local tastes and aesthetics. They can feature local artists, local choices, in a million ways, and serve as creative hubs for their communities. And both these ends of the market have good, healthy margins and (with the right consignment model) are also cheap to stock.
In that world, booksellers become a lot more like bloggers who specialize in all things bookish -- wunderkammerers who stock exactly the right book for the right people in the right neighborhood.
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