Does anyone have a good example of this actually happening? I can think of countless small companies that were shuttered soon after a much larger company horned in on their business.

I can't think of a single example of a company that actually became more popular and relevant when the same thing happened.

Google and Microsoft have a huuuge list of projects they jumped into, and failed, leaving the competition stronger than before. All sorts of half-baked apps and ideas - from Google Knols to Microsoft Frontpage.

(Yeah, okay, Adobe isn't exactly a small company. But they're a lot smaller than Microsoft, but Dreamworks has consolidated its position, and Microsoft killed off Frontpage...)