And that particular subset of the game certainly has problems. It is increasingly self-contained, that is the only use for the rewards of raiding is getting access to more raids. Raiding also has the biggest social problems of all the sub-games of WoW, because on the one side people are forced to rely on each other, but that on the other side leads to a strong segregation along the levels of virtual power. And raiding has the big problem that on the one side it is supposed to be the endgame goal for everybody, but on the other side the people who are raiding would like their activity to be exclusive.
But ultimately all comes down to a problem of simple mathematics: In a game like World of Warcraft where expansions are released only every two years, but offer only at best two months of leveling, people spend a huge amount of time in the endgame. If you raid X times per week for 100 weeks, and there are Y raid boss challenges in the game, you will need to spend (X * 100) / Y raid nights wiping on each boss if you want the challenge to last until the end. If you advance faster, you'll find yourself in a situation where there is no new raid boss to kill left before the next major content patch. If you advance slower, you never make it through. Because Blizzard can't offer hundreds of raid bosses, by definition you spend more raid nights wiping than progressing. Take all that together, and at some point you realize that you are working hard, under frequent frustration, with the reward being some even more frustrating content being made available to you.
Blizzard's decision in Cataclysm to reverse their Wrath of the Lich King "raiding is for everybody" policy, and to instead reinstate the "raiding is for the leet" game design isn't exactly helping. A much better design would have offered easier heroics and an easy entry-level raid dungeon, and then made the further raid dungeons harder. While advancing slowly or getting stuck can be frustrating, that is nothing compared with the frustration of not even getting a foot in the door. The average player today has problems even getting accepted into a BoT trash run, with the very existence of "trash runs" telling you a lot about the state of Cataclyms raiding.
Further contributing to the death of the raid model in World of Warcraft is the inconsistency in game design: While making raiding harder, Blizzard made the rest of the game easier. Even my casually playing wife is complaining that she is leveling *too fast*. And the lower level game appears to have been changed from "kill 10 foozles" to "just show up where the foozles are, and they will die on their own from a heart attack when seeing your overly powerful character".
Blizzard will need to decide whether they are making a game for everybody, and that would have to include letting everybody play in the endgame as well; or whether they are making a game in which the leveling game teaches you the skills necessary for the endgame, and that would mean making the leveling game less trivial. The current model with its stark contrast between trivial leveling game for the masses and raid endgame for the leet just isn't going to keep World of Warcraft running for the remaining 20 months of Cataclysm. But it won't be WoW that is dying, but just the raid endgame, which will become increasingly seen as a detached activity for a small minority of no-lifers, and not worthy of sustained investment.
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