According to UK site GamesIndustry.biz "senior industry sources" have confirmed that the E3 expo will return in a different form next year", this comes "following a unanimous vote by US publishers".
"This year, many of the publishers who hold seats on the board requested that an alternative be found to continuing with the show in its present form. ESA president Doug Lowenstein presented a new proposal - and it was unanimously approved by the board."
After all, E3 was always meant to be a trade show, for people in the industry to see what new games are coming their way. With the success of the Internet and blogs, E3 information is somewhat directly passed onto the end users. Even some US television channels have shows live from the show floor, its not exactly a trade only event anymore.
"This E3 2007 will still be stationed in the city of Los Angeles, which the ESA described as a "great and supportive partner helping to build E3." The large trade show floor, perhaps the most visually demonstrative thing of the Expo, will not be present. Game demonstrations will still occur, but they will instead be given to members of the media, retail and development communities at small meetings and formal press events."
Obviously the continual grow of the show would be extra demand on costs for publishers to create a bigger and better stall than last year, more flashing lights, more plasma screens and more freebies.
I'm sure you'd rather see Nintendo put money into the games over their stand at the show.