Room 306 at the Lorraine Motel in downtown Memphis, Tennessee, looks frozen in time. The sheets of the beds are rumpled, undrunk coffee stews in cheap cups, a meal seems half-eaten. It is a re-creation of the room as it was at 6.01pm on 4 April, 1968. That was the moment when, on the balcony outside, the room's most famous guest, Martin Luther King, was shot dead.

King died four decades ago at the end of an era of civil rights victories that ended racial segregation and won black Americans the vote. It was a struggle that finally cost him his life, felled at the Lorraine by a white assassin's bullet from across the street.

But though Room 306 -- preserved as part of a museum -- is unchanged from that bloody day 40 years ago, black America itself is almost unrecognizable from King's time. It has been transformed, both for the better and for the worse. Some positive developments would have been unimaginable for King. Senator Barack Obama is running for President and could become the first black person to hold the job. Black politicians hold top offices in cities and states across the continent. They are buoyed by a large black middle class every bit as wealthy, suburban and professional as its white counterpart.

Yet, since 1968, much of black America has also been beset by disaster. A vast underclass inhabits America's ghettos, mired in joblessness, drugs and gang violence. In the inner cities half of all black males do not finish high school. Six in 10 of those will end up in jail by the time they reach their mid-thirties. These people grow up in an environment often more segregated, more hopeless and more dangerous than the Jim Crow era of the Deep South.

It is perhaps one of the greatest paradoxes facing modern American black leaders such as Charles Steele, now president of the Southern Christian Leadership Conference, which King founded and used as his tool to bring civil rights to America. "If Dr King was alive now, he would be distressed and disappointed in America," Steele said. "America is still racist to a large degree. More so perhaps. It's subliminal and embedded in the system."

That is pretty much the view of Thelma Townsend, 68, who should be retired but still works as a nurse in the suburb of Orange Mound. The suburb is a landmark in Memphis, built for black Americans more than 100 years ago on the 5,000-acre site of a slave plantation. Once it rivaled New York's Harlem as a center of black culture and economic power. But now it has been hit hard by drugs and gangs and unemployment. Many houses are dilapidated and abandoned. Townsend snorts in disgust at the past 40 years in black America. "It ain't changed for the better that I can see," she said. "Drugs are rampant, so killings are rampant. If anything, it's got worse around here."

This is the bad side of black America since King died, and it exists in cities across the country. In Los Angeles, New York, Chicago, Washington, Kansas City, St Louis and many other places, once proud black neighborhoods have fallen prey to the ravages of crime and drugs. Even King's hometown neighborhood of Auburn Street in Atlanta is a wreck and shadow of its former self. Orange Mound and other black Memphis inner-city suburbs are typical. Gangs with such names as Vice Lords and the Gangster Disciples boss the local drugs trade. Killings and shootings are common. Drug addicts seem more common than jobs.

The roots of this decay partly lie in the fatal shot that felled King. His murder sparked race riots in 125 cities that left 46 people dead, 2,600 injured and 21,000 arrested. Entire black and inner-city neighborhoods were burnt down overnight. Many never recovered. The violence quickened the process of 'white flight', destroying the tax base of many city cores. At the same time new civil rights laws allowed the black middle class to flee too. What was left behind became the underclass, deeply vulnerable to the wave of drugs such as crack and heroin that invaded in the Seventies and Eighties and hit by the decline in manual jobs as America's manufacturing industry disappeared overseas. Statistics indicate that things are getting worse. More black people are being jailed than a decade ago. Only 31 per cent of black children born to middle-class parents earn more than their parents, compared with 68 per cent of white children. More than half of black workers are stuck in low-paid jobs. Many experts think there is little prospect of the underclass's plight changing at all. "The outlook is very bleak," said Professor Jerald Podair, an expert on civil rights history at Lawrence University near Appleton, Wisconsin.