I've noticed that lots of yarn stores have closed--not just locally, but all around the U.S. There used to be a LYS map linked to from this site, and many people complained that it wasn't updated with the plethora of closings.
With that being said, there is a fairly new yarn store somewhat near me. It opened in 2011 and carries very expensive yarn. I seriously doubt, though, that it will stay open for long. (And why do people decide it's a great idea to open a business when no one has any money to buy anything anyway?) In this economy, who can afford expensive yarn?
And yeah, knitting ain't cheap! It's certainly much cheaper to go buy a sweater made in China--sad but true.