I don't know if it's hurting arts like Judo. In fact I'd say the reverse is true, Judo is getting a lot of credit in MMA circles and certainly in my Judo class there were people from BJJ/MMA who came along to Judo to help improve their takedown skills. I would say most modern Judo is closer to MMA than it is to TMA though due to it's training methods.
Getting back to the main point, MMA simply offers a faster way for a person to get better at fighting compared to the TMA approach, and most of the population think fighting = self-defence. I don't agree with this, but personally I think MMA sparring is the best sort of sparring a person can do if they want to prepare for physical confrontation outside of class.
One thing to note that as MMA has only really existed (in the modern sense) for the last 20 years it is hard to see how older MMA fighters will cope with the rigours of training. It could be that years or decades of hard training take their toll on older MMA fighters, and they may end up going back to TMA because they still want to train but can't handle the rigours of MMA.
As for MMA taking students from TMA classes, I think that a lot of TMA schools only have themselves to blame. For too long many TMA schools have been selling themselves as places where they can make a person in to a fighting machine. In the advent of MMA and the UFC, the public are a LOT more discerning about the hyperbole and marketing that many TMA schools use.
"Let your food be your medicine, and your medicine be your food"