I'm on the fence on this one. On one hand, I think the OEMs are doing what needs to be done with regards to experimenting with form factors. We are seeing fresh takes, and as some of you have stated already, the AiO seems like the solution some OEMs are leaning towards.
On the other hand, I am seeing the desktop and Microsoft in general going through a transition. General consumers are looking more to mobile/tablets, since those products meet their needs. Why need something like AiO for general web browsing, video, email etc. And the way these devices can link to TVs, it's no longer really an issue about screen size anymore.
While advances in tech mean more powerful tablets/mobile devices, at the same time, current desktops may be fine for the general consumers needs. So the task then is how to make the modern desktops more compelling again. The AiO can address that with the touch interface and perhaps slight space saving over a regular tower PC.
I also agree with Laura too. There is an area such as the BYO (modders, enthusiasts, overclockers), the professional market (designers, engineers etc) and gamers, where the desktop is still relevant. But this group is more niche. Can the OEMs really target some gamers, when for the most part they can fall under BYO.
It's an interesting discussion and I certainly will be on the desktop side of things since it is my preferred platform for gaming as well as the fact I like to tinker with it. We'll see how the market reacts as OEMs continue to refine their ideas.