In fact, I'll be participating in a pen&paper RPG next week, but it will be the first time in years. I think the vast majority of traditional RPG gamers now seek the holy grail in online form, just from a time standpoint. It's very difficut for people to coordinate their work schedules, drive from all over, etc.
There have been some great single-player RPGs such as Neverwinter Nights, Daggerfall, Jade Empire and Star Wars: Knights of the Old Republic- all those games lacked was the social dynamic of interacting with other players.
Several years ago, the Vampire:the Masquerade game hit the nail right on the head: it introduced an online mode wherein players could join a campaign which had been created by the host (or GM)- the story would then proceed with host directing events, the only difference being the players were behind their own computers. All of the player interaction, banter & arguing was there, as was the human element behind NPC actions and story twists. It was really the online progeny of pen&paper gaming.
Unfortunately, it was too buggy. It also predated the widespread adoption of DSL/cable, so disconnects, timeouts and other ISP issues were common. I suspect the Internet infrastructure just wasn't robust enough at the time.
While plenty of MMORPGs are the antithesis of roleplaying, (like WoW, though it's a blast in it's own right) others achieved remarkable success in creating immersive worlds. To date, nothing has come close to the original Everquest. In it's first couple of years, THAT was an experience unlike any other.
It's possible the upcoming Vanguard: Saga of Heroes take the next step towards realizing the MMORPG dream. The issue for MMORPGs is that ultimately it all boils down to the online community. But for the classic RPG experience in which the epic storyline revolves around the actions of your small group and without any grief from huge guilds and newbies begging at the city gates- for that, break out the character sheets, pizza and Jolt Cola.
Now where is that massive stack of D6's I was using in the last Champions campaign...?