Short answer - NO it is NOT dying out. Java has a huge developer base, and many enterprise level applications are written in it. It drives pretty much the entire insurance industry, is a huge part of IBM, and has educational institutions behind it. Apple just dropped the ball, and wants people to upgrade. Personally, I use my quad G5 for everything EXCEPT Java...for which I have a Windows machine for.
There are a lot more JAVA apps out there than most people realize and there are a lot more PPC Macs out there than Apple cares about. Having just had a new app fail to even launch today because of a JAVA error (which probably will remain unresolved) I am not at all pleased with Apple.