Notice that that I said, "shrink," not disappear. But one thing I don't think will happen is that the "take it apart and sell the pieces" model that iTunes used for music will apply to books. I don't think people want to buy chapters of books, even nonfiction books, the way they bought individuals songs from an album. And while I hope ebooks can give short fiction a shot in the arm, I think that will be a side effect, not the driving force. Which brings me to my main topic, which is Fictionwise.
When I got my Kindle, all my early purchases were through Amazon because they make it soooo easy to buy books. They even make it easy to "buy" free books. There are plenty of books in the Kindle store that are free, either because they are out of copyright or they're being given away as a promotion. But there are also books and short stories for sale on Fictionwise, which has been around for ages and supports many ebook formats. Any non-DRM'd Mobi format "ebook" can be sent to Kindle and retain all its ebook features, like pretty formatting and links from the table of contents; it just needs the Amazon layer of DRM applied, either through their free email conversion (which sends the file back to you so you can cable it over to your Kindle) or through the 15 cents per MB conversion (which sends the book directly to your Kindle).
Having figured this out, Fictionwise makes it easy for Kindle owners to buy fiction, long and short. As long as you do the setup (white list their address at the Kindle end, and give them your Kindle email at the Fictionwise end), you can then use an "Email to my Kindle" button on your Fictionwise download page. It works great! For most short stories, the email charge is only 15 cents, which is worth the convenience to me. And now I can shop for short fiction long after it has come out in magazine form. I don't generally read much short fiction, but it's nice to be able to support authors who don't publish much in long form, and to read outstanding stories that deserve to be kept available. So far I've bought short stories and collections by Mary Turzillo, Jay Lake, Nancy Kress, and Chris Beckett, and I expect to buy more in the future.
Who needs iTunes when you have Fictionwise?