While the impact of NXT contestants is becoming increasingly limited, I think that the NXT programme should continue for a number of reasons.
The first of these is that while recent winners have not proven to be instant hits, one only has to look at The Miz for an example of a contestant who's impact was gradual. When he came second in WWE Tough Enough (either season 2 or 3), I don't think much (if anything) was heard from him for about 3 or 4 years. Fast forward to 2011, he's headlining Wrestlemania (albeit in the shadows of The Rock and that talentless wanker).
Reason 2 is that viewers can get used to the NXT talent both outside and inside the ring. If I watch a series of vignettes, I have no idea how the guy featured in them wrestles, but I'm supposed to buy into his character and ability the second he walks out for his debut? I don't think so.
Thirdly, in the past vignettes were usually reserved for wrestler's who had previous somewhere else and so were going to be sent to upper mid-card straight away. NXT has, in a number of cases, been used to develop fresh talent, rather than new, experienced talent.
In fact, I think if NXT were replaced, vignettes are not the way to go about it. Alberto Del Rio was introduced via vignettes, because he was being prepared for instant high billing. Carlito was the same. He was introduced via vignettes and won the US title on debut. NXT is about development, it's not comparable to vignettes.
My final reason in this opening statement is that when the NXT process has produced stars and angles, they have been able to fuel WWE television for months. The Nexus/Cena feud went on for several months as did the Miz/Cole feud. If used right, NXT is a decent method of creating stories.
On the basis of the points I have laid out, I do not believe NXT should be discontinued in favour of vignettes.