Do you think there'll come a day when local papers report about bloggers entangled in cat fights/ lawsuits?

I think there definitely will. Since the Internet can command a reasonable lot of influence and increasingly, more are trusting information that they get from bloggers than commercial advertisments (as its marketing afterall).

Internet scandals are already making waves in papers. Why not bloggers sueing one another? What more if they're "celebrity" bloggers? Like the recent one between Xiaxue and Dawn?
Or maybe even the recent hoo-haa with the Ping.sg community?

Especially if its a slow news day, the reporters might just turn to the Internet for "news".
Will Internet celebs be more well-known than real life celebs in time to come? Perez Hilton and Smosh from YouTube may indeed be more popular than some B and C listed Hollywood celebs.