I've worked in fly shops for years, so I'm biased. That being said,
I can't believe that people are willing to actively participate in the disappearance of the local fly shop.
Fly shops all over the country are responsible for the cultivation of the sport that you all spend so much time discussing on this site every day. For that reason alone, they deserve your patronage. Fly shops are part of the network of people who keep the sport alive: shop owners, guides, industry reps and so on. Without them, you have one less member of the community contributing to the sustenance and growth of the sport.
As for cheap flies on the internet, you very often get what you pay for. I for one would much rather support local tiers who tie with quality material and hooks that won't rust out or straighten than buy flies fresh from Sri Lanka (nothing worse than water damaged hooks). Sure, there are shop owners who try to pass off junk flies on their clients--in that case, I'm all for getting the flies elsewhere. A couple of years ago I was finishing up a semester of graduate courses and coming up fast on the guide season. I knew I wasn't going to have time to tie flies so I bought about 25 dozen cheap ones online. I think that maybe 50% of the dry flies were fishable. On the others, the hooks were flawed or the hackle came unwound while bending them to the tippet. Of the ones that were fishable, I found that I could catch very few fish on them before they fell apart.
In short, they were junk.
More than that though, this sport is one that thrives on tradition, and the shop owner who invites new people into the sport, helps others progress, and provides a spot for local anglers to kibitz is a much a part of that tradition as bamboo and Catskill dries.
By the by, if you are the type to buy outfits and such like on-line or--just as bad--Cabela's or Gander or Walmart or wherever, don't take the line and reel to your local shop to have them put it together for you. C'mon fellas. I can't tell you how many times I've seen and heard about this priceless piece of human cheapary. If you want to live your flyfishing life independent of the fly shop--do it, dive in, get lost. Don't cry about fly prices one day and then ask "what's hatchin'" the next. Ethics. Get some. They're nice.
Troutking: my advice is to go to a local shop and tell them exactly what you're looking for. My money says they'll get you into something that fits your budget.