It depends. The top priority for most people is to have an adequate emergency fund, especially in tough economic times. With an emergency fund, aim to have three to six months worth of expenses (some experts are even suggesting eight to 12 months) set aside in a liquid account such as a money market fund or short-term CD. Another high priority is to pay off outstanding debt balances as soon as possible.
Assuming that you have an adequate emergency reserve and no or low debt, then, yes, by all means, continue funding your 401(k), at least up to the maximum amount that is matched and, ideally, up to the maximum annual contribution limit ($16,500 in 2009 plus an extra $5,500—for a total of $22,000—if you are age 50 and over). When stock prices are down, you will buy them "on sale" by continuing to contribute.
A word of caution: Your stock allocation seems high for someone so close to retirement. You are taking on substantial market risk by having so much of your portfolio invested in stock. If you consider your personal investment risk tolerance to be moderate at best, you might follow the frequently used guideline of using 100% minus your age as the target percentage of your portfolio in stock, For example, if you are 58 and plan to retire in seven years at 65, your stock percentage would be 100 - 58, or 42%.
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