Cd sales have taken a bit of a dip with the appearance of digital downloads from iTunes and elsewhere but I don't think we will ever see the Cd disappear entirely- at least, not until someone comes up with another way to make a hard copy of the music that becomes widely accepted. 8 track tapes and records gave way to cassettes, which gave way to CD.
Right now I don't think there is anything on the horizon to overtake CDs. Many people still like to have the disc and be able to use it anywhere, anytime without messing with transferring their wanted songs between the computer and MP3 player. You also miss out on some of the little extras inside the CD case (pictures, lyrics, etc.) going with all digital download.