Challenge Modes are targeted towards the same kind of audience as Heroic raids. People who want a frustratingly difficult challenge. I think the Hour of Twilight dungeons were a huge success, and I think Blizzard knows this too, so I think we'll see more of this fun gameplay + intriguing lore style dungeons in the future. Normal and Heroic level dungeons still exist and are still the mass-market form.

Challenge Modes are separate from general instances, and they're intended for groups of people to go in and do them together. I doubt you'll find a lot of people trying to PuG these (or, if they do, getting extremely frustrated).

Not everyone does hard mode raids, but some of us love them, and as the previous poster said, Challenge Mode is intended for those types of people. While I think it's fine not to be excited about Challenge Mode because it's not your thing, to assume that the regular instances will not be interesting because Challenge exists is a fallacy.

Check out WoW Insider's own piece describing the new 5-mans. Jade Serpent and the Brewery both sound pretty engaging to me: http://wow.joystiq.com/2012/03/19/mists-of-pandaria-dungeon-preview/