I've seen this evolution start years ago, when I saw laptop and notebook sales overwhelm the desktop sales. Right now we are seeying two seperate uses for a computer: content consumption and content creation.
Most people are content consumers, like watching websites, reading emails, listening to music, watching Youtube movies, etc.
Some people are content creators, like website admins, forum guru's (that's us, smile and wave), music creation, photo editing, Youtube uploaders, etc.
For consumption, people are massively leaning towards tablets, netbooks and smaller notebooks (<15"). The fact that Apple sold 9,000,000 iPads the last 3 months, should be a good indication there is no turning around.
But for creation, most of the times those devices won't do or not enough. Some netbooks are good enough, some ultraportables are actually very good. But the most important things are physical keyboards, fast (mouse) input, fast system and good multitasking. For now, this is something a desktop computer or an All-in-One (iMac for example) can deliver plenty of, along with the more powerful notebooks and laptops.
But since most people are content consumers, we'll see the "larger" devices like desktop PC's and 17" laptops disappear more and more. Will they vanish ? Not in 5 years or so, maybe later. The future household (~5 years) as I see it will be a tablet per person, one All-in-One computer in the house and a gaming console or two.