They're still up here, they just aren't in Pioneer Square or Belletown any more. Those two areas have gone full gangster and complete yuppie, respectively, making for the DJ/Cover Band phenomenon you note.
In the U-District we lost the Rainbow but the Blue Moon is still running strong. The Crocodile re-opened to much fanfare and the Moore still does live shows every night. There is also the Tripple Door for a more upscale scene. There are a couple of places out in West Seattle, the Skylark Cafe most notably, but all the real action has moved to Ballard. The Tractor, High Dive, Sunset Cafe and Connor Byrnes are kind of ground zero right now.
Gentrification sucks, but it still rains a lot up here, meaning lots of dudes locked inside with guitars. Fret not, live music is still *cough* alive and kicking in Seattle.
(I apologize for two puns in one sentence. My shame is great)
Oh, absolutely on the in-ear monitors. I'd be happy with powered monitors. Right now we're using these heap-o-garbage passive things on the floor, and they're terrible. For the most part, we're happy if we play places with their own sound system, though.