Our Walmart was set to close the fabric department a few years ago and petitions spearheaded by our Mennonite community convinced them to leave it. However, the "fabric lady" tells me that when the store is remodeled in 2011 it will be removed. Hopefully the news on this thread means differently.
We have a LQS that has been open less than a year and seems to be doing a booming business. I feel that when I purchase fabric there I am not only paying for the fabric, but for the expertise and extreme customer service. When I buy fabric at Walmart I must know what I want and look until I find it. When I'm at the LQS I can just walk in with my project and am surrounded by experts who help me until we are all satisfied with what I have selected.
My budget requires that I shop at Wm and on sales at Hobby Lobby (an hour away) and Joann's (1 1/2 hours away) for most of my projects. But when possible I go play in the LQS and get what I can from there.