Well, I'd rather be part of a bunch of smaller communities who share the same interests as I do, tend to have more in depth knowledge than the whole community about said subjects, and who care about the quality of submissions, like here on news.yc. I find much more value in that. And I think news.yc is evidence enough that social news sites run by niche communities can thrive and prosper.
Yeah, but from the perspective of converting digg into a bunch of news.yc communities surrounding other niches, I highly doubt that could ever happen. And any attempt to do that would just ruin the digg community.
