My perspective on this: People downloading music are thieves. Major label artists are greedy bastards.
Now that I've stated my position, let me defend it.
Expensive car prices do not justify car theft. The fact that car dealers are the scum of the earth doesn't mean that their business model is flawed. People who download mp3's from P2P networks are stealing, plain and simple. It doesn't matter that the artist barely sees any money, the artist VOLUNTARILY SIGNED A CONTRACT WITH THE RECORD COMPANY. It doesn't matter that the record companies are full of clueless old guys, they are RUNNING A BUSINESS AND HAVE A RIGHT TO RUN IT HOWEVER THEY WANT. Downloading unlicensed music is stealing, no matter how much the people doing it try to justify their actions.
The artists could fix this problem in a couple of years if they wanted to. They are all under contract, no one is telling them they have to sell their music through record companies or major labels. No one is telling them they have to sign up with ASCAP or BMI to be their heavies on license enforcement. If a critical mass of artists would embrace a new model, they could get it off the ground in a couple of years and realize amazing profits. Of course, during those two years there would be some risk and they wouldn't be making money, so none of the greedy bastards want to even try it.
MP3.com was an attempt at a community like you mention. Frankly, the problem with MP3.com was that 99% of the music there was crap. The fact that the average person can make music in their home with home equipment doesn't mean that the music is good.
It really needed better rating and filtering systems to create a community.
Music companies are selling a lifestyle, not just music. How much music is played on MTV these days? People are buying into the Britney lifestyle, or the Snoop Dogg lifestyle, not just the music itself. It's hard to sell that through a free distribution model.
The iTunes model is pretty close to solving the distribution problem for the established labels, I think. It's too bad a software company had to solve the problem after several really bad starts by the record labels. The creation of a whole new distribution model for unrestricted music, on the other hand is far from a solved problem. I can't think of anyone still left from the .com boom that is even trying to solve that problem.
It will be interesting to see how the next few years play out. If a few major artists got fed up with the system and had the balls to try and change things, I think things could change really quickly. But the consumer needs to change too. For every "OH MY GOD THE DMCA IS EVIL" post on Slashdot, there are two "OH MY GOD, THE MATRIX/LORD OF THE RINGS/SOME OTHER MOVIE IS OUT, GO SEE IT!" posts. People vote with their wallets, and based on movie revenue, I'd say people are voting strongly for the DMCA.