Here are my two cents, I understand this is an academic forum, and I probably do not belong here, but it is my first post, and you will pardon my lack of sophistication. 

1. All education has been dumbed down to meet the basic essentials at the tertiary level. At least thats what I feel with my experience in India and South East Asia. 

2. It really depends on what the students want to do. While there is some 'superiority complex' with people who teach and learn theory of music and history of European Classical Music, I personally feel it does come with its merits. On the flip side, if a student wants to study Indonesian Gamelan or K-Pop or Karnatic Vocals, she should have to be forced to study the history of Bach, Beethoven, Chopin, Mahler etc. 

3. A sound knowledge of fundamentals of theory takes you a long way as a musician. It gives you a basic understanding of the language of music so you can communicate across languages and cultures which helps significantly. 

4. Most curriculums are quite set and built around western classical music at its core. To remove it, would mean to create an entire new system without the fundamentals. Imagine trying to teach calculus, but saying algebra isn't necessary for it? (maybe this analogy doesn't hold, but you get my point.)

I could give find references in journals which validate my point, but I am not in music education any more. Apologies. Hope this helps! 

Many thanks for your response, Sriyash.

Here's an excerpt from an article that I chanced on recently. I think it helps the discourse.

'Why should Western classical music be advocated by music education policy makers? Among the possible reasons, the term "Western classical music" is a misnomer. It is really a multi-cultural and international tradition forged by musicians around the world who brought their various individual and cultural perspectives to a music that grew up in Europe but that from its infancy drew upon African and Near Eastern roots. Its widespread influence as one of the great musical traditions does not make it necessarily better than others but does make it worthy of study. A music that is known so widely, has captured the interest and participation of so many musicians and their audiences internationally, has such a rich repertory, and represents so many cultures strikes me as a human endeavor of inherent interest and worth.

Western classical music is also one of the ancient classical traditions in the world. Its long history can constitute a bridge to better understanding the particular contributions and detractions of Western civilization. This music constitutes a rich heritage of instruments, compositions, theories, and performers. It sometimes instances brilliant and deeply moving creations that manifest human genius at work. There is, as Jane Roland Martin puts it, a "stock" of cultural makings and doings that support, enrich, challenge, and defy social and cultural conventions. Musical artifacts include written compositions that are brought to life in performance, archaic instruments that are preserved, copied, restored, and otherwise kept for posterity, and musical rituals that are described, recorded, and recreated in a host of ways. As Neil Postman notes, knowing about the eighteenth century is particularly important at a time when mediated culture focuses on the present. Knowing the past traditions of a particular place enables one to connect with those who have gone before just as one relates to people in other places. Viewed this way, Western classical music is a precious heritage that links Westerners to their past just as it links them to other world cultures.

This music is an organic, living thing. Although informed and influenced by Christianity, especially Roman Catholicism, it is also rooted in the musics of Eastern Orthodoxy and Judaism, and in the secular musics of Middle Eastern and Northern African countries in which Islam took hold. Its mythos, influenced originally by Greek polytheism, later acquired a monotheistic Judeo-Christian perspective that is now being transformed as the tradition increasingly finds its home in Asia, Africa, Oceania, and the Americas, affected again by polytheistic and other religious and mythical world views. It has also absorbed a host of other musics that have likewise become classical in their own right. For example, jazz is in the midst of becoming a classical tradition and many of its elements have been included in the Western classical mainstream. Likewise, rock, country, and gospel are acquiring classic properties such as notation, instrumentation, and self-reflexivity, and becoming incorporated into and interconnected with the Western classical tradition.

Musical notation is one of its singular achievements. Literacy provides a way of recording the nuances of performance, intellectualizing music, propagating it widely and disparately in time and space, and quickly learning new pieces of music. Becoming literate in this tradition is essential. Since the music is notated, one can read a score and hear how it should sound and quickly catch on to what is happening even if one is unacquainted with the particular piece. Remaining illiterate in this tradition leaves one deprived of knowledge essential to full participation in a society that regards itself as Western. This deprivation, whether intentional or not, is arguably racist and classist when it fails to ensure that all people irrespective of their background have the opportunity to be musically literate. Recognizing the multiplicity of musical cultures in today's societies suggests expanding literacy beyond the Western classical tradition while also emphasizing aurality/ orality- a point that Patricia Shehan Campbell is at pains to make. Notwithstanding the importance of musical orality, failing to develop musical literacy in at least one notated musical tradition makes it difficult to break out of a solely aural/oral tradition into a literate one, something that exponents of aural/oral or little musical traditions may wish to do, sooner or later. And leaving students limited is arguably mis-educative since it stunts and prevents their further development'

Estelle R. Jorgensen, ‘Western Classical Music and General Education’, Philosophy of Music Education Review, Vol. 11, No. 2 (Fall 2003), p 134.

Article Western Classical Music and General Education

I think elimination of Western music theory and European music would be disastrous. Without Western music theory, composers would no longer know how to create tonal harmony. Likewise, European music has bequeathed to civilization timeless music that evinces a powerful spiritual quality. However, I think music departments should also teach other traditions of music theory (like Middle Eastern maqams) and musicology (African music, Indian music, and so forth).