IMHO it's hard to say. Is there room for someone to challenge WN on high-volume markets, especially a ULCC with lower-frequency service? Definitely...but the same could be said about many markets like Kansas City, St Louis, Columbus, Indianapolis.
I don't think Frontier's legacy in MKE precludes expansion. In part that's because time has passed, and frequent travelers who might have held a grudge have since transferred frustration to Southwest's gobbling up of AirTran. Today's Frontier doesn't go for the same demo that was most affected by the F9 hub pulldown anyway.
Milwaukee has patronized Frontier pretty well as of late -- MKE airport stats have Frontier with just over 18% increase in passengers from last March, in part due to more A320's and in part due to the 2nd weekly CUN flight. Looking at the mid November schedule the 20/week DEN-MKE is Frontier's busiest destination east of the Rockies after DFW (34), MSP (30) and DCA (21). So MKE appears to be doing reasonably well for Frontier. But that doesn't necessarily mean it's in line for the new point-to-point flying