Have you noticed an increase in using temp and contract workers in your industry?

Generally speaking....absolutely, but not for the more underhanded reasons that the gloom/doom folks are spouting.
1) Dispersed organizations: Hiring in your non-native state or country is much easier under contract. The best / brightest aren't necessarily next door.
2) Partials: Especially in the start-up space, you may not need a full-time head. More people are working partial hours.
3) Contract-to-hire: If you're using a headhunter, it is nice to try before you buy.
4) Thin funding: Before you kick off ADP and w2s, throwing a couple of bucks around pre-revenue may be necessary. 1099ing that is much, much easier.