You could use the same style argument to justify the end of shooters (new weapons and levels aren't really a new game), platformers, etc. DDR and Beatmania started as games that were intentionally not easily playable at home, and they had a big part in keeping the arcade industry alive at the time. They not only spawned the first modern version of the genre (ie, you play in real time, non imitate a la Parappa), but they gained a pretty big audience. In current times, arcade versions of DDR are little more than advertising for their home versions, which are still very popular. See the Konami/RoXor lawsuit, for example.
The recent popularity of GH and RB is when someone decided to be smart and realize that people generally like actual rock music more than in house j-pop, and the sales justify this. However, the core 'rhythm game' audience is still there, and these games have expanded it, if anything.
No, I don't think the genre will die soon. Most of us in that 'core audience' buy the game for the gameplay first, although good music definitely helps. However, I wouldn't worry about new controllers constantly coming out; I can see that stopping soon. I think the recent peripheral explosion is an effect of the popularity boom, not the cause. In the past, new games in a series have used the same controllers, and just had new music and notecharts. I don't think these will stop coming out any time soon. There's still tons of rock music to put in GH/RB, and Konami will keep pumping out in house stuff as long as people keep buying the new iterations of the games (IIDX is at 14, now).
