I'd just like to point to how the far more popular sport of football goes about it's business in this regard. At the moment, there's no Premier league team in Sheffield (they were both in league two last season). Does this mean that football is dead in Sheffield and that kids will stop playing? Seems unlikely. Did football stop in Leeds when they were relegate? Of course not.
The point is, relegating Newcastle wont kill off rugby in the north. It's a weak area, but there's no point trying to hide that fact by artificially keeping them at the top. Just as Leeds Carnegie continue to contribute a player or two to the England 20's despite going down, so will Newcastle. As far as I'm concerned, that argument doesn't have a leg to stand on.