Things were bound to level off...

This market was bound to level off eventually. No market grows infinitely large. That being said, there are some artificial factors at work here. The most significant one is the restrictions Microsoft places on netbook makers in order for them to qualify for cheaper XP licenses. Virtually all currently-shipping netbooks sport specifications that are at the Microsoft-defined limits and not beyond (though a few are below).

If last year's netbook didn't meet your needs in terms of performance, this year's won't, either. They're pretty much the same in terms of CPU, RAM, disk space, and graphics chipset. And if you bought one last year, the only difference this time is the color of the case or the form factor (generally speaking). There's no incentive to buy a new netbook if you already own one because it's not much of an "upgrade".

Netbooks are virtually as good as they're going to get until Microsoft ships Windows 7 (or Apple ships a netbook to compete, or netbook makers return to Linux - which I'd like to see but don't expect). Once that happens, they can look at dual-core CPUs, more RAM, larger storage, etc. Until then, netbooks are at their specification limits and we can't expect anything really "better". Hopefully pricing will stay roughly the same and specifications go up, otherwise (as has been noted here) the netbook will lose in favor of low-end notebooks with better specs.

Combine a leveling off of specifications, an increase in price range (as noted by others here), and a slow economy... a leveling off of netbook sales is practically guaranteed... Even a decline in sales would make sense. Once the "XP Limits" are removed, I think we'll see some very interesting stuff in the netbook space. In the meantime, expect a lot more of the same old thing... and a decline in overall interest.