Quite a lot of people are still a bit wary of going anywhere 'foreign' and the provision of reps gives them a feeeling of comfort, and of having someone British to help them out if anything goes wrong. This attitude is encouraged by the TOs.
We use both methods to book our holidays, sometimes for simplicity we will just spot something in a brochure somewhere new and will just 'go for it'. However we do prefer to book direct, for most of the reasons that have been stated above, i.e. putting the money directly into the local economy, getting to know the owners (and being looked after by them when you return), and getting exactly what you want.
I was quite amused by the comment in the piece above about low cost flights driving down the quality of tourism, now why aren't I surprised that the boss of one of the biggest TOs should say that, although of course ThomsonFly is a part of TUI, now isn't that a budget airline?
I do hope that something comes of this budget route deal as it would make life much easier for us, and lots of other people on this site.