At first glance, it sounds like the end of the road. Either $500k was a bargain for a site that was once the 24th most popular website in the US, or it was in terminal decline.
But look again and you see that the site was bought by the startup developer Betaworks - with the clear intention of merging with their social news aggregator news.me. There's potentially a big synergy there - a site that encourages users to vote up the best stories on the web (with a Newsroom section in beta) and a site that collates all the news your contacts are sharing and sends it to you in a daily email.
But there are two interesting differences that have relevance to other aggregators in an increasingly crowded market:-
1) news.me is focused on news stories (as you might expect from the name). It does not have digg's ambitious aim to "discover and share content from anywhere on the web". This makes it clearly relevant to publishers, and more of a Taptu than a Flipboard.