Drink out of the fire hose?

I've been following a discussion slightly related to Dave's yesterday post over at agent Nathan Bransford's blog, in which he says the publishing industry "somehow manages to be seen as being in decline while growing at 3%, and where 400,000 books were published in the last year but (seemingly) fewer of them are published by mainstream houses who are (seemingly) focus on a narrowing slate of blockbusters." This has the corollary: "As the spigot of publishing opens up wide, we're going to have to find a way to drink out of that fire hose." and "what is going to take for the good books to stand out?"

As a reader, I must admit I'm not concerned about the fire hose at all. I just discovered a fabulous new-to-me author this week (I'll blog about it next week).

As an author, I must admit I'm VERY concerned. How can authors make a living in this market where you can download stuff for free and the traditional publishers are going away?

Maybe it's time to give up the old author paradigm? It is a dinosaur? Maybe we should all publish our stories and books for free on the web and make our livings off of ads or other-idea-yet-to-be-invented?

What do you all think?