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There's really nothing much (new) to report but since you ask. . .

I noticed the shelves of most major retailers had been cleared of all but a few budget labels about a year before the corporations started winding the public up with their faux HD vs. Blu-Ray format "war". Is it a mere coincidence that the budget labels retailers retained were also the purveyors of dub quality VHS to DVD transfers found primarily on multi packs?

Perhaps.

But considering the bargain space cleared up allowed for the stocking of HD and Blu-Ray product it's suspiciously coincidental. Then again so is the fact the major retailers have ceased stocking product for independent labels or don't stock it in a timely fashion. (Caligula the Imperial edition wasn't even stocked at my local borders until this month, granted you could get the unrated editon, but why bother?)

Is this evidence of a concerted effort to sink independent labels by denying shelf space to their superior quality DVDs while stocking inferior quality multi-packs that carry boots of many of these same titles thus flooding the SD DVD market with low quality video garbage in a effort to force consumers to upgrade HD?

It sure seems that way. But the answer is probably far simpler, the multi-packs take up less shelf space, are cheaper, and are probably stocked as loss leaders. All of which means that budget DVD isn't getting shelf space. But is it dead and gone forever?

Some labels are dead as the Dodo and others have adapted or changed. For instance I believe Westlake, Platinum, and BCI (which were amongst the cream of the PD/bargain bin crop) have retooled their image and moved into the more 'legit' video market. The PD labels that are bottom feeders are pretty much all that's left now. Their 2-3+ movies squeezed to the side of a DVD is not just sub-par quality it's total utter garbage about 99.999% of the time, which may explain why you aren't hearing more about them. We've wised up, aren't buying, or are just sick and tired of it all.

Well that and the fact they just aren't getting stocked much anymore and, when you do see some dollar DVDs, it's usually the same old same old. Alpha may be the only PD label still chugging along the rails, but since they started branding their DVDs with screenbugs I've stopped buying.

But while the good PD labels may be gone budget DVDs are not. The major studios have been dumping remaindered titles on the market for the past year or so, witness the recent hullabaloo over Oldies dot com's sale. Big Lots has also been a getting trickle of these DVDs since last year, but each store seems to get a scattershot of different titles. BB and CC have likewise been running semi-regular sales, mostly clearing old SD stock. . .

But, to answer your question, I think bgart13 is right. We have to wait and see which way the winds are blowing with Blu-ray. It could become a high end niche format ala Laserdisc or. . . Who knows?