Well, for starters, it'll still be possible to do that. If you're happy running some dungeons and hitting up LFR once a week, you can absolutely do that - you won't get gear that looks like the gear that drops in other raids, but you can do it. This could be good or bad - on the one hand, as a transmog addict, I may end up spending some time in those raid finder groups, looking to collect models I don't have. Meanwhile, people who don't care at all about transmog may give up LFR entirely - with valor being reduced and there being less of a reason to cap it, there won't be as many people running LFR for quick valor.
Meanwhile, with LFR rewarding more loot than it does currently, it could become a viable option for people to gear up their alts, and sustain its role in that fashion. What interests me is the design intention of making LFR a stepping stone to normal raiding, when in the past it was said that LFR was meant to be its own separate progression track. Currently, the way I've experienced LFR is that people run it for gear upgrades the first week or two, then the people who have access to other levels of raiding move on to them, while those that use LFR as their engame make up the majority of people playing it. With the removal of people who are just there hoping to blaze through for fast valor, LFR could well function as a separate progression path, but that seems to not be the case.
It's hard to really know because at present, LFR has essentially replaced five player dungeons for a lot of players. Hopefully in Warlords that won't be the case, and people who prefer five player content will be able to progress with it. But that does leave LFR struggling to find an identity and I think having it become something people do before jumping into normal raids via the group finder is a pretty big change for the feature.
Of course, I should admit up front that I'm biased to think it's a good idea to have LFR gear be separate from normal and above. Why? Well, because I remember when LFR launched, and I had to farm for my tier set on LFR difficulty to get set bonuses in order to tank heroic Spine of Deathwing. This is why I feel like the good decision (making LFR gear separate from normal) doesn't necessarily gel with the idea that people should be using LFR as a stepping stone to higher raiding difficulty. I'm not saying it's not going to work, I'm just leery of it. Watcher tweeted that the first tier of raiding will be tuned around normal dungeon gear, so I'm hopeful that LFR will be an optional, bypassable stepping stone - you can go from LFR to normal, but you won't have to run LFR to do normals.