Well, at my time at Aston, the number of CS students was rising. However, when I graduated in June 2001, we'd only just started to see the beginning of the dot-bomb, and the terrorist attacks on New York were still a few months away. Since then, the economic conditions for software developers have become a lot worse.
When I was looking for jobs in July-August 2001, there were literally hundreds of vacancies, covering many pages, advertised in every computing journal and national newspaper. This went down to about half a page last year, and has recovered to about a page. Searching on sites like Monster.com (etc, don't take that as an advert or a recommendation) would also give hundreds of vacancies; now it gets you about five.
I think what's happened is that the people that Ian and I termed the 'mercenaries' have started looking elsewhere. For a while, it looked like you could make a lot of money out of software; now it looks like you can make a living. I don't think you should blame this on Microsoft - their market share is not much greater than it was four years ago (does an extra 1 - 2% mean all that much when it's more than 90% already?) The mercenaries weren't doing it because they loved the challenge of working with software; they were doing it for the money. These tended to be the people who complained that the coursework was too hard.
Well, guess what, software is hard. A lot of people think that they can translate a bit of hacking at simple programs into strong, reliable, easy-to-use programs. You can't. As soon as you need to handle errors, rather than ignoring them, and you need to deal with asynchronous operations, and simultaneous operations, you need to think about how your program will work. You can't always experiment and find out, because testing does not prove that your program is correct. It only proves that no errors occurred during the most recent run of your tests, which may not be sufficiently complete (you can only look for bugs that you think might be there). Those are the software tools we have, but the best tool is in between your ears. A lot of developers never understand this.
The OSS movement try to suggest that software is easy and anyone can hack on it. Not true at all. The whole tone of The Cathedral And The Bazaar tries to suggest that professional software developers are developing a priesthood to restrict the Average Joe from getting involved in programming. I don't think we are; I think professional developers have seen through the superficial simplicity of programming to the murky depths of complexity lurking below.
A CS degree can help educate developers about the need to understand your program, and provide the skills to write software. (It can also indoctrinate people in the One True Way to develop software, which is not a good thing). All told, I'd rather see people with a CS degree developing software than people without; you do get excellent self-taught programmers, but you get a lot of poor ones too.