I don't think the problem is as bad as the media makes it out to be.
The way we tell stories morphs. Look at the English literary tradition -- a thousand years ago it was all oral heroic poems, five hundred years ago it was religious-themed poetry written in latin or mystery plays performed at religious festivals. Then four hundred years ago, drama (in English!) reigned supreme. Two hundred years ago 'the novel' was seen as a corrupting influence on society. Today we have novels written on cellphones. Not my bag of donuts, but can we really say -- without an indepth analysis -- that one medium is superior to another?
Just an example: I read a ton when I was little -- my little brother plays playstation. What I think a lot of people don't give the gaming industry credit for is that games -- especially the RPG types -- are FANTASTIC storytelling media. I still think that the story behind Final Fantasy VII trumps most fantasy novels I've read.
This is not to say, of course, that I think libraries need to be converted into GameStops. I just think that people who've decided that books are the ONLY legitimate storytelling medium would be surprised if they actually took the time to play something like God of War, anything in the Final Fantasy Series, or even something like Oblivion. Heck, even WoW or Diablo has some pretty awesome moments.
I DO think that there's a problem with literacy in this country, and that parents/teachers/society needs to do a better job of emphasizing the importance of books to kids (which is why I heart Harry Potter, the Spiderwick Chronicles, etc). But I also think that the way we tell stories is going to be almost unrecognizable even 100 years from now. The WAY we tell stories is always going to change; THAT we tell stories won't ever.
Just my 2 cents.