I would argue advertising is doing just fine, perhaps better than ever. I see sites like Engadget, Techcrunch and The Boy Genius as really just advertising. I'd argue I have RSS feeds that are effectively entirely advertisements for products and services: web services news, hardware news, software news, design (eco), tshirts, design (3d and architecture), and local performance events. Frankly, a large portion of the RSS feeds that are web content filters turn out to be products/services too.
That is just in RSS land. In Twitter/im land, I have things that are effectively advertising too.