Sub $1,000 full frame bodies will be coming sooner or later, at which point APS-C becomes increasingly less appealing for the kind of people you see around here. In the long term I think APS-C will be relegated to the same sort of status your average P&S has right now.
Hmm.... I don't really think so. Already the quality difference between APS-C and full frame is pretty marginal. In the vast middle where most pictures are taken and displayed it's impossible to see any difference. The bulk of research and development dollars industry-wide is going into improving smaller sensors for cell phones. Advancements at that level will benefit APS-C more than full frame.
Even if we see a sub $1,000 full frame in the future, most consumers will view that as too expensive and will opt for the APS-C camera at half the price or less. (The top four selling DSLRs on Amazon right now are all under $500).
But, maybe I'm misunderstanding your post. Perhaps you mean that enthusiasts will convert to full frame. That could be possible, but judging from the sales of the 70D and the pent-up demand for the 7DII, it appears that the market for higher end APS-C cameras will remain strong for the foreseeable future.
On the other hand, if you are suggesting that the niche that was formerly filled by point and shoot cameras will be filled by small DSLRs, such as the SL1, I'm inclined to agree.
That's pretty much it. If Canon can't sell compact cameras because smartphones make them redundant, then they need to upgrade entry level cameras to the point that people start to think it's worth their time and effort to use a separate device again.
I guess part of the reasoning behind saying that sub $1,000 full frame cameras come along with that is that if entry level cameras become that much better, then people have that much less incentive to buy mid-range cameras. It makes sense that the entire product line moves down accordingly (and, as seen with the 7D and 70D, that seems to be the natural order of things anyway). Once it's only a few hundred dollars difference between mid-range APS-C and full frame, I think a lot more people will be jumping on full frame. Hopefully that also means we get medium format on the high end.