It won't ever take off because it's not universally applicable - no one wants to write a CRUD web app as a literate program, for example. Most developers don't want to write any more words than they really have to: just try getting your average developer to write some actual documentation - it's a struggle! (Of course there are some developers who want to write books - but it's a tiny, tiny minority.)

Literate programming will remain an interesting and fun little niche, but I don't think it'll ever get any further than that: it's destined always to be a bit of an academic exercise. (Just so I don't sound like a terribly negative cynic, I have written a couple of literate programs and really enjoyed it.)