Bovvered - I think you're being slightly overly pessimistic. There is a gap between J41 and A319 on routes where flying less than daily just won't bring in the customers.
Flybe will forever remain a company driven by a need to look for new routes to develop, while its best performing routes are attacked by the larger players.
Yes, plenty of people do live in the UK's 8 or so largest urban centres, but people living in smaller cities like Exeter, Southampton, Norwich, Cardiff, Nottingham, etc... still need to get to other places while some of the larger cities need frequency on routes where a B737 would be overload.
I don't profess to know the ideal size or shape of Flybe for years to come, but unless Easyjet order a load of regional aircraft, the core business rationale is sound - there will always remain a need for an airline flying 50-100 seat aircraft around the UK regions.