From the always informative Marketing Profs, here's a short article on three reasons you shouldn't abandon your email newsletter for a blog, or (I suppose) vice versa:
My advice for now is to continue publishing an e-newsletter. If you�re sending it in HTML, trim your design down to the bare minimum and make the file size as small as possible. This will give you a better chance of getting past the spam filters and other blocking tools being used by major ISPs, such as AOL.
Though we're big blog advocates, blogs are just another tool in your marketing arsenal. The open rate on email newsletters is falling (it's around 39%), but they're still an important mechanism for communicating with your customer base.