Like many others have said, I don't think iRacing itself "killed" off LFS.
LFS isn't dead. But my interest in it is on a life support machine. Steadily beeping and breathing away, until I decide to pull the plug - literally - the transformer for my Logitech DFP. It sits, unplugged from USB on the floor, wondering what will come first. A reason to plug it back in, or the desire to tidy it away back into it's box in the cupboard?
I suspect iRacing has taken a few key, long-term, veteran racers from LFS. More casual racers, such as myself - well I got bored of the same old stuff. I got bored of going round the same corners again and again. I got bored of struggling to find populated race servers running something other than GTR@AS3 or FOX@BL1 - the CTRA was the only saviour with it's enforced track changes, but now that is gone. Even cruise servers provide an amusing distraction when too drunk or bored to concentrate on racing properly, but ultimately you get tired of playing with kids.
Three or four years ago when S2 was released, it felt like I was racing amongst adults and fellow racing enthusiasts that generally just wanted a good clean scrap on the track. As LFS has grown, that feeling has been diluted to the extreme and public, un-adminned servers can be a lottery. Although I have to admit that I can't actually remember when I last raced online without checking LFSW, so that may have changed in the intervening months.
LFS has suffered from hard-core veteran racers leaving for iRacing. LFS has suffered from it's own success and accessibility, in attracting too many kids that have no car driving experience and struggle to learn mature racecraft. LFS has suffered (controversial one here) from too many cruisers which take it away from the thing that made it a success in the first place: plain & simple public pick-up racing. And most of all, the lack of new features and new environments has made it grow stale for me. It's not about expecting updates for free, LFS is already fantastic value. I'd happily fork out a tenner or £15 for an extra couple of tracks and cars, call it S2½ if you like. But I can't help but feel that LFS needs a shot in the arm if it's going to lead the way once again.