Many years ago, perhaps, though it was never profitable to fly Belfast to Dublin- certainly not these days when its only 2 hours by car, bus or train.
I can imagine Flybe will indeed be annoyed if this rumour proves to be true. They have had the chance to expand from BHD, with the likes of Baby proving that there is a market for new European routes, but they dont seem interested. Perhaps a lack of spare aircraft floating around to operate them. Their view might change once more 175s arrive, but for now they're happy to send people to mainland Europe via England on their services. Besides, would you like to spend 2+ hours sitting in a noisy uncomfortable Dash going to Frankfurt from Belfast??
Aer Lingus/Arann operating to Glasgow would be interesting, as its not a high yield route for Flybe, even with their multiple flights a day, and connectivity with Loganair to the rest of Scotland. Same for Aberdeen, though the oil business helps that route.
My personal thoughts as to what would be a logical move at the city airport: Get KLM in, or get them partnered with Flybe, and maybe one of the Lufthansa subsidiary airlines in to operate the destinations mentioned by Brian Ambrose in the Belfast Telegraph. The city airport gets a lot of European business traffic each day, and would benefit with city links like that. Also with contraints at Heathrow, high APD in the rest of the UK, and the resulting desire of more people wanting to go longhaul from outside the country, the airport could also cater for that market with such links, and it would have all 3 airline alliances here as a result