This is nothing new in coalition politics with the demise of the Progressive Democrats in Ireland being a case in point. The Progressive Democrats were formed in 1985 following a fallout between the founder of the PD's and Charles Haughey and in 1987 they won 14 seats out of 166 in the Dail pushing Labour into fourth place. The PD's were a free-market, economically conservative party, very similar to the 'Orange Book' wing of the Liberal Democrats which is currently in the ascendancy within the party. The PD's were minority coalition partners with Fianna Fail on four occasions and they were,
largely credited with shaping the low-tax, pro-business environment that contributed to Ireland's Celtic Tiger economic boom during the 1990s and 2000s.
Despite their apparent economic competence the PD's were wiped out in the 2007 General Election losing 6 of their 8 seats and the party folded in 2008 with the remaining two TD's becoming independents within the Fianna Fail and Green coalition.
Whilst I don't think the Liberal Democrats will cease to exist they will probably remain as Westminster's third biggest party albeit with about half the seats. The situation in Wales and Scotland is different where the demise of the Liberal Democrats seem far more likely because there is an alternative in Plaid Cymru and the SNP. We won't have to wait long for the Welsh/Scottish theory.