I think children's fiction is going through a golden age at the moment with some great stuff being written. However, I don't think adult fiction is going through a decline of any sort and I believe there is still a huge number of great works of fiction coming out each year.
The reason I think adults are reading children's fiction is because a lot of the great adult fiction is really challenging and it may be that a lot of adult readers are put off by some of these books. On the other hand, it may be just that more adults who wouldn't normally have been readers are turning to excellently written children's fiction as a way into books. Let's hope it's the latter.