Idealog has a great essay comparing the birth of e-books to the birth and proliferation of mass-market paperbacks. We're already seeing the same kind of interest in the classics (which were incredibly cheap in paperback form and are free in e-book form), and if this analogy holds up, we're about to see an enormous genre explosion:

The paperbacks were typically priced at 25 cents when hardcover books were $2 or $3. (Compare that 8-to-1 or 12-to-1 pricing ratio to what exists today. It doesn’t.) And mass-markets were available in tens of thousands of locations nationwide, perhaps more than a hundred thousand, when bookstores were few, department stores tended to have only one location, and trade books were typically available in hundreds of locations, or at most a couple of thousand.

The much more widespread availability of these titles combined with their much lower prices created legions of new readers. And, in the beginning, most mass-markets titles tended to fit into “genres”. Westerns were a really big one fifty years ago. Bantam’s perennial bestselling author of westerns, Louis L’Amour, may still be the biggest-selling author in unit sales in (what is now) Random House history. Crime and science fiction lines were also popular as were raunchy books.

Is Amanda Hocking the very beginning of a flood of cheap genre fiction? I think so. The only question is going to be whether publishers realize too late that this is the wave of the future.