It is back onlline.
This really should be logaritmic, but Google Docs charts are lame.
Ya, like this one (thanks to BitcoinX).
The chart on the top clearly shows difficulty barely moving but when it does, it follows the direction of a price move (after a long lag behind). Because the costs to mining vary, from one mining operator to the next, what likely has been happening has been a rotation of GPU mining capacity from those whose electric rates are not competitive to those whose is competitive. Thus overall little net new investment in mining capacity, just that the possession of the capacity has changed.
Just like driving down the street while looking only in your rear-view mirror is a bad idea, this price vs. difficulty relationship will likely look different going forward versus how it has looked in the past.
The block reward drop to 25 BTC, likely in less than five months, will decimate GPU mining profitability. Additionally, because FPGA mining is still nicely profitable at sane difficulty levels (due to a 5:1 to 10:1 efficiency advantage over GPUs), the electrons will be allowed to continue flowing through them.
And if the ASIC designs truly arrive around that same time, difficulty will skyrocket, regardless of any directional change in the exchange rate.