Have blogs "overpowered" or conquered the market of traditional websites?
The answer would be a matter of definition and is not as easily given as in this article or the linked Problogger article, I think.
Yes, Blogs are superior to the purely HTML (private) homepages you saw in the beginning of the web.
Otherwise I think they are just an extension/addition to the tools available to create a successful web project.
Let's go through the points of the Problogger article:
1. Websites are clunky and expensive; blogs are lean and cheap.
By definition, a website is a whole web project, including all it's features, pages, etc. So, I can only disagree with this point by just having a look at web-site of the company I work for, which could never be replaced by blogs - but which uses blogs and podcasts as one of it's CRM&Marketing features. (Not relying on third party solutions, though. For reasons of security and lack of needed features provided by said third parties. So a big time saver and "cheap" only in the long run.)
Actually Google - and I adore their services for me as an individual, I feel so thoroughly analyzed :-) - provided me a great example of what I mean while writing this:

2. You have to wait for someone to make changes to your website; your blog can be changed easily by you.
That's dependent on who "you" are. When I was a child my mama used to cook for me. Now I do it myself. In the old days I left people with some for-their-needs programmed syndication tool. Today you can even use your you-name-it (Word, Open Office Writer, etc.) word processor to generate content. And even upload it! So, expect your webmaster to set you on his spam list and turn on his answering machine if you continue bothering him with simple upload requests.
3. You have to wait for someone else to set up your site; your blog can be set up by you in 15 minutes.
No, you don't have to if you have the knowledge & granted access to do it yourself.
Google "Self HTML" for mere starters... And you will create project templates once you have done something for the first time.
4. You can update your blog at an airport, while you’re on the run. You have to call your webmaster … and wait … to update your site.
I think this point shows most clearly the author doesn't know what he's talking about. Yes, I have to write an email to the owner of someones blog, too, if I ask him to post one of my articles on his site. He could also give me write access to this blog. As I could give you write access to my blog. Or access to any non-blog project I have... FTP access, for example.
5.-7.
Yes, someone seems to forget that a blog is just a homepage powered by third party work. So of course you can add any feature you could add to a normal project... Unless third party disagrees... ;)
8. It takes three to six months for the big search engines to find you with a website. It takes two or three days with a blog.
Hm, the usual frequency of spiders of all search engines is quite a mega-bit faster. Maybe add some sensible Meta tags & keywords? You might not hit the search engine tops very quickly, but... Hmmm... Who was it again powers all those great blog services and meta-services for blogs?
Well, let's leave the rest of the points in peace. I'm kind of tired after a long day at work. All in all it's a childish article written by someone with no knowledge of corporate internet needs or even the possibilities given to any private individual willing to learn.
So, if you've read as far as this, you might also want to hear that I like, maybe even love Blogs and the blogger scene!
They ARE fast and convenient, as long as you don't stretch what they were made for and accept that they have limits. Why else would I use one?
But - even if suited to the needs of most private users - they are not the holy grail and you can do much much more to/with/in the net if you educate yourself! And still use a blog as an additional! As even Problogger does...
