Hi Rich,
I AM a publicist in addition to many other hats I wear, so I will answer just a couple of your questions here as there will be an inherent bias on my part.
First, let me say there has never been a better time to do your own publicity, if you have the bandwidth to do it on top of your own business. There are SO MANY free tools out there, like journalist query services such as HelpAReporterOut.com, PitchRate.com and ReporterConnection.com, which tell you which reporters are seeking expert sources to quote on which topics. Frankly, any time you get quoted in a publication, it’s a “third-party endorsement” and builds way more credibility for you in terms of thought leadership than running any print ad. 
PR is not a dying art; in fact, thanks to social media, it’s even more prevalent because we have even MORE places to pitch our clients, e.g., Mommy Blogger sites, etc. There’s a finesse to PR that takes the right personality. Not everyone can do it. It takes a thick skin to handle all of the rejection before you get someone to say “yes” to doing a story on you, and it takes a huge time commitment. Stories I’m pitching for clients today in major magazines may not appear in print until 6 months from now. You have to have the patience to wait for the results. This is why no publicist will take on a client for less than a 6-month stint.
Some publicists will charge ONLY for results, but you have to be careful with that, especially if they are doing the highly questionable “ad equivalency” comps to determine what to charge you for a story appearing in, say, Fast Company magazine. That one press mention might cost you $20k, so you need to know up front what they are going to charge you.
Many people ask, “Why does PR cost so much?” The answer to that is that publicists have to pay for many subscriptions to be successful at their jobs, e.g., ProfNet, Cision, MyMediaInfo.com, PR NewsWire, BusinessWire, GiftListMedia.com, Camtasia, Animoto.com, etc., etc. All of these costs add up and they need to cover them on top of their living expenses.
“Normal” fees in PR range from $50/hour (in smaller markets) up to $250-$500/hour (especially when it’s high tech-related topic PR). PR normally works on a monthly retainer, which is due the first of the month that pays for that month. This allows your publicist to eat and pay their mortgage and buy groceries while they’re busy pitching you to the media, analysts, etc. Most publicists I know won’t take less than $3k/month as a minimum monthly retainer, but in this economy, you will find publicists who will take less. 
Ideally, to save you time and money, you will want to find a publicist already established in the genre you want to promote. How will you know if they are? Look at a press release written for your industry and research the publicist who wrote it. The reason behind this is that those publicists will already have a media list built (time & costs saved for you) and relationships built in that target niche. Mind you, ANY publicist who tells you, “I know editor so-and-so, so I’ll get them to do a story on you” is being disingenuous — no story will get published unless there’s an actual story angle there adding value to their readership, regardless of the relationships your publicist has with the media.
Any publicist worth his/her salt today knows social media inside and out, understands strategies, tactics, etc. to promote you within that realm. Integrated plans that combine traditional and social media work the best, imho.
I hope this info is helpful. Please ask away if you have any further questions I can answer for you.

There is something to your question about the convergence of Marketing and PR. @Denise Dorman is right when she talks about the expense of PR subscriptions. However, the world of PR has changed so much in the past few years with the growth of social media.

Now that anyone can be a publisher, I think the real convergence between pr and marketing takes place at the content level. Where publicity used to rely on pitching stories to traditional media outlets, it is now possible to generate the same type of buzz (or even bigger) through the content you produce.

Instead of pitching press releases, we now have the ability to pitch blog posts, infographics, videos and other content to bloggers and even directly to our target audience who can in turn distribute information through their own personal social networks.

I don’t think of PR as a “dying art,” just a changing art. I also think the role of PR has become more important in terms of customer relations and responding to negative situations which can spread very quick through social media than just generating positive publicity.