Is this a deal?
 

Going from KBP to LHR and was able to get a fare on KLM (DL's partner) for $280 - I thought may be I can save few bucks and use some left over DL miles.
Same flights came up as 25K miles plus $320 (for taxes and fees).

Has DL devalued their miles so much that you have to pay extra just to use them?

Where is the deal in this case?

DL Skymiles have their value , just not in the example you have shown.
A little effort in searching would bring up numerous such examples.

It is a 'NO BRAINER' to purchase an intra-Europe travel using cash/ credit card than Skymiles, given your example.

I use DL Skymiles for BE seats to Asia and Europe .... either on DL or it's partners.

If one cannot get at least 2-5 cents per mile of value, then it is more prudent to pay for the ticket, than to use Skymiles.

Sorry, misread the original post...due to the taxes and fuel surcharges, along with the UK's APD, on this side of the Pond, intra-Europe redemptions are rarely worth it.

+1. Using miles for travel within Europe is not usually a good deal by time taxes and fees are factored in.

Try Yapta to find a low-priced revenue ticket, but mind the booking class if you want to earn miles; if this is of no consequence to you, just go for the cheapest fare.