For the most part, the history she describes sounds unfamiliar to me, as if she's inhabited a completely different fandom than I have. In her version of reality, the reason for SF prose's waning popularity is that it has grown increasingly literary, and readers who are looking for fun escapist books are being turned away, and only finding SFnal satisfaction in media tie-ins. Literary fiction, on the other hand, has rediscovered narrative and storytelling--including classic SF tropes--and restyled itself mainstream fiction. Non-SF readers dismiss SF because it's no fun, with not enough gee-wiz and laser battles and exploring strange new worlds.
While I see reflections of reality in that version of things, it's a distorted version of my perceptions--like one of us is living in an alternate universe.
I definitely agree that literary fiction is appropriating SF tropes and being so churlish as to refuse to acknowledge it (except for Michael Chabon, of course). There are a lot of books on the literature shelf that are obviously, as far as I'm concerned, science fiction and/or fantasy, and it's just pandering to literary readers' prejudice that keeps them from being shelved there. Most notably Cormac McCarthy's The Road and Audrey Niffenegger's Time Traveler's Wife. Both authors, IIRC, have poo-pooed the notion that their works are science fiction. Bullshit; they are. (Or fantasy, if you want to argue the point in Niffenegger's case, but speculative fiction either way.)
On the other hand, the thought that what's driving mainstream readers away from SF is that it's not mythic enough, not escapist enough, not heroic enough, is utterly alien to me. What I invariably find, when I talk about my enjoyment of science fiction to people who are not fans, is that they think it's all Star Wars. In fact, I have an entirely undeserved reputation among my students as a Star Wars freak--undeserved because I never bring up Star Wars or Star Trek, but since I make no secret of the fact that I'm a big science fiction geek, everybody jumps to the most obvious conclusion. (In point of fact, while I do like Star Wars and most science fiction movies very much, I'm much more fanatical about written word science fiction.) People tell me they don't like science fiction because it's silly, escapist, unrooted in things that matter to them. It's not lack of escapism that I see driving non-genre readers away--it's the perception that escapism is all that's there.
But hell, I don't have anything like Rusch's experience or credentials. Who am I to argue with a Hugo-winning author and former editor of Fantasy and Science Fiction? (And a damn fine writer, I might add. When I was lucky enough to attend WorldCon, I voted for her to win one Hugo she did not get, but in my opinion deserved--for "Recovering Apollo 8.") If she says that's what she sees, I certainly ought to take it seriously and consider the fact that the folks I'm interacting with aren't representative of the larger readership. When she talks about the "Science Fiction Village," hell, she knows those people.
And more importantly, while I don't necessarily agree with her summary of readers' attitudes toward science fiction, I emphatically agree with her larger point:
I am one of the heretics who believes that art must be enjoyed first and analyzed later.
I've played the literary game. Majored in literature, went to grad school, taught Shakespeare and Magical Realism. Hell, I'd say I played the game well. I'm all for authors aspiring to literary merit and profound meaning.
But entertainment ought to come first. If you've written a profound work that does not entertain, then in my opinion you've failed as an artist. Conversely (contrapositively?) if you have written an entertaining work that is not profound, you've succeeded. Maybe not as much as if you'd been able to do both, but more than an author who does not entertain.
As to the specific point of the essay, I'm not antagonistic to media tie-ins, but I largely don't read them. If they truly do (or potentially could) bring more readers to SF and revive the genre, then good for them. As an aspiring writer, I'm much more annoyed by celebrity novels. Those do crowd good books off the shelves, much more than tie-ins, which, after all, are written by real authors, and often real authors struggling to establish themselves and be able to do this for a living.
(A minor bone of contention: she very nearly lost me as a reader by assuming I didn't know what the word "catholic" meant. I would recommend to anyone to avoid suggesting in an essay that your readers look up a word in the dictionary. Seriously!)