I'm sorry to hear of this development. But that's why there's so many publishers; if one says no, you can check with another. Most famous authors report compiling stacks of rejection letters before having works accepted for publication. For inspiration, check out: http://www.npr.org/templates/story/story.php?storyId=14453550

And it seems to me like this editor you're dealing with may not have the vision to compete in a changing landscape, but surely others do.

Strength comes from within; don't let a setback change your opinion of how much potential you have.