There are still some very nice working line German Shepherd Dogs, but yes, there has developed a split between working dogs and show dogs which is a shame, but after years of going in the wrong direction, I would say that the show dog lines are improving as well regarding health and temperament, and following the original breed standard, at least here in Europe.
So, I think the GSD will come out alive and kicking, and as "Love is a..." said, many pro handlers just don't want to deal with Malinois. I know of experienced military dog handlers that went from GSD to Malinois and straight back to GSD again. It is not a dog for everyone.
But speaking as an owner of the sibling to the Malinois, the Groenendael, I agree that what is happening to the working dog/protection breeds is going in the wrong direction. My first dog was a breed typical Tervueren, a working dog, but try to find one now and it is near impossible because the Tervueren and Groenendael in many lines, particularly the French, have been breed for beauty.
From a theoretical point of view, one could also say that the Malinois working dogs are also being bred away from the breed standard, but in the opposite direction of the Groenendael and Tervueren, and of all the four varieties it is probably the Laeknois that matches the original breed standard the closest. I would love to see more focus on temperament and getting the Groenendael and Tervueren as a whole back to the working dog standard. They were not bred to be pretty, couch potato family dogs and the breeding in that direction is ruining them. I hate that I have to do such intensive research to find a good Groenendael or Tervueren, and to be honest, the dog I have now is too soft according to the breed standard.
For the Malinois, if it were up to me, it would be split in two - a hard working line and a breed standard working line, but unfortunately I cannot swing a magic wand and make all breeders and show judges to what I want them to.
For the Laekenois, well, maybe the fact that they are the least popular of the Belgian Shepherd Dogs is actually not such a negative thing for the breed after all.