In game development, it's not at all unusual to see cycles of hiring and firing. Companies swell with employees when they need to get a product out the door, and then sometimes shrink in the lull between its completion and the start of the next project.
Due to the size and rapid growth of the series, however, this is a bloodbath. The only Guitar Hero company with a real track-record is Neversoft (creators of the Spider-Man and Tony Hawk series), and they seem to have survived in some reduced form. Vicarious Visions also has some history, mostly working with Neversoft on ports and sequels, and it looks like they're going to survive as well.
On the positive side, a lot of people (including store owners, software developers, and factory workers) made a lot of money in a very short time. On the downside, it's left behind a sobering scene of wreckage that impacts real lives. These boom and bust cycles are the Gold Rush of the digital age.