I don't see it as a bubble at all. It might be a gold-rush (although I don't see that there was ever that much gold), with a new market opportunity and low barriers to entry, but it seems exactly like the iPhone app store from where I'm sitting, as a professional app developer. It will become more and more difficult to get noticed, until it becomes dependent on mastering some other kind of filtering mechanism - charts, storefronts, ratings, marketing, whatever.
Offering a free book won't be enough when there are thousands of new free books being added all the time.
So it'll probably slow down, but so what? Who is betting the farm on this?
The worst thing about self-publishing, in my eyes, is that there are good books out there which aren't as good as they ought to be.
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