Two words: 2004 ALCS.
Which situation is more dire? Being down 5.5 games with 40 games to play, or being down three games in a seven-game series?
And recall, pitching was our problem in the 2004 ALCS, too. Schilling was DOA, Arroyo was terrible, and Lowe had been so bad he'd been bumped from the rotation. Pedro was the only one who pitched well (as Schilling's been the only one pitching well now).
The Sox pitching has sucked. And when it hasn't, other problems have arisen (passed ball by Mirabelli, followed by bloop RBI single by Jeter).
If the pitching can turn around, the Sox can make the playoffs. If it doesn't, they can't. I wouldn't place a bet either way.