They really need to get busy and diversify their product line. Too many eggs in the WoW basket for too many years in my opinion. It's worked for them for a very long time so it's difficult to say they were wrong per se. It appears to me that they've possibly painted themselves into a fiscal corner though.
A smarter play for them might be to do F2P up to the current expansion with the cash shop and whatnot but require people to buy the newest expansion to play in it and then convert that to F2P when the next comes out. I think that's something like SOE does with EQ/EQII. And of course, have a plan like they do now, $15 a month gets you what you get now and add a monthly credit towards cash shop stuff. Somewhere in there, there's probably a viable plan. You could likely expect 20+ million players in a WoW F2P system, perhaps more.