The loss of one or two (or as someone once calculated up to 40%) of the
root servers has no or little effect. DNS is relatively robust, but not
indestructible.
However, no one outside of Cable & Wireless knows just how many networks
or even which networks they eventually will cut-off. If C&W continues
down the road of "de-peering", they may eventually cut off too much and
cease to be a useful Internet provider. They may be a fine private network,
but if you eliminate enough interconnectivity you aren't in the Internet
any more.
PSI was simply the most public case. But it doesn't appear that even
Cable&Wireless's own sales force knows how bad C&W's network connectivity
is going to get until after C&W finishes cutting off all the networks.
There have been private reports that C&W sent out letters to several other
providers.
Will C&W still be a viable network after its management finishes? I don't
know, I don't know if they know. They didn't seem to understand the effect
cutting PSI would have.