I never liked the sidebar from day 1 and have not used it since.
Yes. DX is still useful, primarily as an easy-to-use mini-app maker with which I regularly make productivity gadgets for my own personal use. Aside from those, I use clocks and weather.
Popularity is another matter, and, I think, more to your point. DX is certainly not for everyone. Even if it was designed that way initially, the reality is not everyone can make it do much more than clocks, weather, or calendars. Further, not many people need it to do more than that--and that's really widgets in general, not just DX.
So, yes, having the basic, most used widgets included with Win 7 or whichever, will make DX obsolete to some people. It would be even more so, as c242 pointed out, if those Win 7 gadgets were skinnable. Majority of the widgets in the DX galleries match WBs or DX themes; DX end-users are probably mostly Object Desktop users, who probably came for the WB skins and would also like the matching widgets to go with. So DX still has the upper-hand there, IMO.
But popularity does not always equal usefulness.