One of my favorite hostels in the world is Jalan-Jalan in Melaka, Malaysia. For a maximum capacity of about fifteen people, there's exactly one shower and one toilet -- and it's a squat toilet.
But it's clean, the rooms are spacious, there's Internet, and the owner, Sam, really seems to love running a hostel. It has that intangible "travelers' atmosphere" that brings complete strangers together. In the evenings, Sam would take his guests out to dinner at local restaurants that we never would have found otherwise. At one of these dinners, I met a long-term resident, a New Yorker who had moved to Japan and become a foreign correspondent for a major Japanese newspaper; he had since retired. We talked about his experiences in Eastern Europe during the fall of the Soviet Union, and my own trip to North Korea.
All that, and going home to a squat toilet doesn't seem so bad. With those kinds of amenities, the rent's cheap: $6 or $7 a night for a private room; probably considerably less for a longer stay. The heat and humidity can be pretty bad, but you slow down and deal with it. The only real danger (assuming you stay off the road) is mosquitoes, and the solution to that problem is not high-tech.
With the advent of modern life in Melaka, and the real improvements in quality of life that entails, in the form of hospitals, shopping malls, and so on, does it necessarily follow that places like this will go away? I'm not sure, because a place like this hostel still has all you really need.