I'm not going to fault their low fare (even down at or below marginal cost on some seats) attempt to lure passengers -- they had to start somewhere. I think the initial failure was staying out of the GDS systems. It took me a lot to get my coworkers to look at Independence for booking, even with the 20% corporate discount.
Even though I managed to get a round-trip to LAS for $125 all-in, there were other fares I picked up that were well in excess of their cost for the seat. I had multiple $400+ seats to SJC and a number of walk-up seats that we needed for some business travel. Just in the last few months, many of my coworkers that weren't excessively frequent fliers were switching over to the DH flights -- one preferred the DH flights from IAD-SFO over the B6 equivalent to OAK. He was a big fan of the entertainment device, even at a $10 surcharge.
I think if the fuel prices had held lower they would have still lost money, but been able to last longer and into the apparent upturn in the industry we're going to see in the next 12-24 months. At that point they may have been able to get enough A319 planes to offset the high RJ CASM. It was a gamble that lost, but I don't feel it was as excessively stupid as some others seem to believe. It was just another business plan that ultimately didn't make it.