As a number of members already know, I'm fascinated by this topic. To set the scene, the Canon 1Ds MkIII has 21.1 MP and the Canon 5D has a more modest 12.8 MP. Fabrication technology has moved on since the 5D sensor was designed but, from what I read, in terms of sensor noise and dynamic range the 5D pixels still hold the advantage over the 1Ds MkIII but not quite as decisively as the difference in pixel area might indicate. An example of how things move on is the Nikon D3 which, with a 12.1 MP sensor, has only slightly bigger pixels than the 5D but can operate at remarkably high ISO numbers.
The 1Ds MkIII pixels are still bigger than those of the semi-pro Canon 40D. Scale that 10.1 MP 40D sensor up to full-frame while keeping the pixel size the same and you'd end up with 25.8 MP so, centre frame at least, the 1Ds MkIII is still working its lenses less hard than the 40D (and the 450D for that matter with its 12.2 MP sensor).
It's my guess (no more) that Canon could produce a full-frame successor to the 5D sensor with 16 to 18 MP and still achieve the same per pixel image quality. The rumour mill, and we know how unreliable that can be, suggests that Canon is working on a new generation of CMOS sensors with IQ as good as the current 1Ds MkIII and 50 MP density. Expectation is that we will see such a sensor in the 1Ds line possibly as early as 2010.
Coming back down to earth, Canon's Chuck Westfall said, in an interview with CNET
, that he thinks that "the full-frame market is set to expand in 2008". So yes, full-frame sensors will survive. Maybe the question should be whether they will increase their market share of the DSLR market. Both full-frame and cropped sensor DSLR sales are likely to increase, unless the world economy goes seriously south, but if cropped sensor sales increase faster then full-frame market share decreases.
I think the squeeze will occur in the niche medium format digital camera market. If Canon, Nikon and Sony, to name but three, start producing high IQ full-frame sensors in the 40 to 50 MP range that leaves medium format cameras nowhere sensible to go.