There is definitely room for someone to compete with Adobe, but whether anyone ever can is what matters, there's a reason Photoshop is so widely used when there are free alternatives.
Not many of the folk I know with CS actually use the vast majority of it. For example I do almost no print work. All the stuff Adobe sweat over for the print folk - doesn't impact me in the slightest. In fact it gets in the way of the stuff I need to do since it adds complexity to the UI.
In the Mac land a bunch of folk are switching to paid tools like Pixelmator and Acorn as alternatives to Photoshop for some work. They don't replace everything that PS dues, but offer what a subset of the PS audience needs for a substantially cheaper price with some arguably better functionality in a few places. I know people who have CS and Pixelmator, and spend most of their time in the latter and just bring up CS when they need something "clever". Both Pixelmator and Acorn seem to be doing very well for themselves - and I think both are still single developer shops.
What nobody apart from Adobe seems to be really doing is the "suite" part - managing the integration well. For example - I would part with $200 in a heartbeat for a micro-suite that handled bitmap and vector work together to the same level that Pixelmator managed bitmap stuff, with some nice glue/plugins to support where I work (web apps, mobile apps, pushing out multiple resolution versions, etc.).
The latest version of OmniGraffle has Bezier curves, but I haven't used them, so I do not know whether they are any good, but I would guess that they may be lacking for the cases where you want to do more artistic drawing. It is more a diagramming tool than a drawing tool.
When I look at the free/open source solutions (gimp, scribus, inkscape), what I see are tools made by engineers. I think if you injected in a good measure of input from designers and usability experts it'd go a long way towards being solid competition.
InDesign was the insurgent and KILLED Quark in short order - primarily because Quark had become such a legacy piece of junk and couldn't keep up with the times or the much more modern InDesign.
Quark committed suicide: they outsourced virtually all of their R&D, leaving none of the people who had built the previous versions employed. They ignored their users, assuming they were captive, for more than a decade.
They also ignored the move to OS X for literally years, leaving (mainly Mac-based) users to choose between staying on OS 9 and moving to Windows and buying all new hardware.
Adobe came along at just the right moment with InDesign -- ran on OS X, best-of-class print tools -- and you could almost hear the stampede.
A real pity, too, as InDesign has a horrorshow UI, while XPress's "make boxes, put things in them" metaphor is exactly how DTP should be done.
e.g. Microsoft, MySpace, etc. etc. I'd argue didn't and couldn't are essentially one-and-the-same.
Ostensibly, the idea of the CS was that you could mix and match just the pieces that suit the work flow of your discipline, whether that's photo finishing, graphic design, interactive design, or what have you.
The reality is that this is one of the reasons Adobe's products are bloated, difficult to learn, and not truly integrated or consistent in their UI.
They will continue to offer a shrink-wrapped version according to the article. Even if this wasn't needed for customers who still want it (perhaps jacking up the price, for offline access, security, privacy), it would be worth keeping just for the reasons you state (for piracy).
The reality is that the work flow of developing an interactive screen kind of still sucks. The process is basically ad hoc, tools are unintuitive and unoptimized.
At one time, Fireworks may have been a step in the right direction, but it's the neglected stepchild of the Adobe line, and I anticipate its continual decline...
I think the subscription model may be good for businesses, because they could always be on the latest version without having to go through a new approval process etc.
However, for private users the barrier to entry will generally not be lowered I believe. At least not for the occasional amateur photographer/graphic designer/video guy. Many people buy PS once and are on e.g. version 'CS' and stay there for a rather long time. They might try the new thing out, but can always fall back because they "own" a copy and can use it as they please. People do not think as rational about it, the security to always have a fallback is worth a lot apparently.