It is still too early to make predictions about the demise of the 3.5" standard, but it is clear that the industry has chosen a new direction from the top to bottom. Transitions like this take time and it is easier to piggy back them with other changes, like moving from platters to flash memory. Several hard drive manufacturers have been quoted as saying that traditional platter drives have a lot of life in them, but they never said what form factor would carry them into the future.
As it sits right now, the highest capacity 2.5" drive is exactly half that of the highest capacity 3.5". Even though they are not exactly abundant, in the next two months we should see the Western Digital Caviar Blue 1TB drive sitting on the shelves of Best Buy's all over the country. Around the same time, companies like Hitachi and Seagate will follow suit and then the price war starts. Before you know it we will have 1TB 2.5" drives selling for 150 USD or less and 1.5TB drives not far behind.
NAS servers, DAS enclosures and enthusiast products should see a faster adoption rate of the 2.5" standard. Enthusiasts have already fallen in love with SSDs and that romance is going to burn wildly out of control after the products from CES 2010 are unleashed. The NAS and DAS market will see similar reduced power consumption benefits as enterprise servers, but on a smaller scale. Reduced power consumption means the cost of operation will be reduced.
The 2.5" form factor market is growing rapidly and it won't be long before we see wide spread adoption that breaks through to the mainstream. Solid state drives are going to play a key role in just how quickly that happens. We have already heard about SSDs that are going to set the market on fire, but their high cost will slow progress.