I didn't know it was closing, but not surprised - I remember a while ago they "updated" their website and all of a sudden they didn't seem to have any stock.
I've dealt with them a few times over the years, with Jeff himself mostly.... and didn't someone own the shop before him, way back? I may have that wrong.
As you say, a shame to see a long established business closing down. But other shops have shown that it is possible to maintain both a thriving shop and an online business, and most of them are in out-of-the way places - Peach, Coda, Guitar Village, World Guitars, GuitarGuitar.... Perhaps the people now running Machinehead just weren't up to the task.