All Songs Considered ponders this question in their current Podcast.
My answer to the question currently is ‘yes.’ Record labels are still entrenched in the music industry and for your album to get any wide distribution you’re going to need a record label and all the resources that it provides. In the near future however, the role of the record label will shrink and shrink since the distribution of music is becoming easier and easier thanks to the internet. If you can generate enough internet buzz, your album can be successful.
People use Radiohead as an example of not needing a record label, but Radiohead already has a huge following, thanks in part to a record label or labels when they were breaking onto the music scene. They don’t have a label now, but they used to, when it mattered most.
For now record labels are still necessary, but their end IS near.