Although somewhat related to this question, I have what I think is a different take on it.
Is a desktop app that has no connections to the ‘cloud’ dead? I believe that some things are going to continue to be on the machine (operating systems obviously, browsers, some light-weight applications), but more and more things are moving to network-based applications (see Google Docs for office suites, GMail and other web-email clients for email, flickr for photo management, and more).
So other than the lightweight applications, is there anything that, in 5 to 10 years, will continue to be (either out of necessity or just demand) remain on the desktop and off the cloud?
10 years or more ago this would have been, ‘Are non-internet applications dead?’
There’s things the cloud does better than desktop applications, and in those places I’m sure non-cloud applications will become increasingly rare. But there’s plenty of applications where you might not want to use the cloud, the benefits don’t outweigh the costs, or the complexity just isn’t worth it.
It’s a new tool, and it’s a better tool than desktop applications for many things. However, you don’t throw away a hammer when you buy a screwdriver, you simply reserve it for when a nail needs to be driven.