I'll put my first comment in this thread after having my license for nearly 4 years.
LFS is not dying so far as I have seen. I've personally recruited people to join in the last few months on the sole principle that this is the closest simulator I have found for drifting. We all track day drift occasionally in real life. Even some of the drivers I have met in the BDC occasionally play lfs because of how close it can be with the right hardware setup.
Drifting is become more and more popular than around 2 or 3 years ago with many more people starting the sport. Many of the UK tracks have started doing public drifting days once a month or every 2 weeks and there are always more people driving and spectating everywhere I go. Hopefully as the word gets passed around more and more people will try lfs out now the sport is becoming more popular.
As for the graphics / game-play argument. I would pick game-play over graphics every time and it doesn't really matter in this case as there are mod packs for lfs to make it better if you want that. Take GRID for example that is an awful awful game for drifting far to arcade like for my tastes but the graphics look amazing. I'd much rather it be the other way around.
Also to back up the cruise point and GTR points. There not my cup of tea personally but the cruise servers always have a high number of players from what I've seen.