The worst thing for Digg is that the narrative is no longer 'cool new site called Digg', it's now 'Digg is losing it's numbers'. The narrative will be included in stories for the next 12 months, unless they can produce some major numbers to comprehensively reverse the trend.

The worst thing about this narrative is that the company itself isn't in control of it.

And I get the feeling Digg is on the road to becoming a cautionary tale in bullet point presentations, the Friendster of social news.

The narrative might be longer than 12 months. Digg was the poster boy for web 2.0. At a time, they were in a small bucket of companies that was going to "turn" things around after the crash. This tale might be remembered just like friendster is remembered when talking about social networking. It will be even louder if reddit or another social news site really starts dominating the market. Digg might always be the company that blew it by not listening to their users and not iterating / testing changes.

Even worse, the narrative will now be 'Digg is losing its numbers and was caught out artificially inflating their advertisers articles on the site'

even worserer it's sort of a tea party hangout.

All this shows is that Digg was well on its way down before the new rollout.

... and that something made visitors drop even faster in the last month.

What terrible event took place in January 2010 that caused a drop that was steeper than the one caused by Digg v4?

Anecdotally, I've heard it was announcing digg v4

Ouch. I never particularly liked Digg, but I feel sorry for all those people who are suddenly out of a job.