It's actually easier than ever to make video games. Back in the day most of the coding for everything was done in-house and engines were created from the bottom-up for every single title. Now most games are made with a pre-existing engine which is leased for the game's creation, and a lot of the work is very similar to mod-creating that amateurs do all the time for established PC games. As the tools of creation evolved, really every aspect has gotten easier, even the creation of art and music since artists and musicians can basically use the same tools they would for every medium now without worrying about making something sound good within the limitations of low-bit counts. Space on the disc is a problem with very few games, and absolutely no problem whatsoever with any PS3 games thanks to the massive space that bluray discs have. Even programming has gotten easier as computer architecture transitioned from RISC to CISC.
Games have dropped in quality for certain, but there are a lot of complicated reasons as to why:
- There was a mini-death of the video game industry in the 1980s caused by a glut of poor-quality titles released on Atari and other systems. Nintendo revived the industry by bringing about strict licensing that demanded titles be of a certain caliber to even be playable on the NES. For a long time if you wanted your game to be released you had to have both publisher backing and first-party acceptance, licensing restrictions have eased quite a bit, and although I doubt we're headed towards another 1980s style catastrophe, it's taken its toll.
- With additional expressiveness and capability you have extra rope with which to hang yourself. Screen tearing, low res textures, etc. wasn't really a problem back in the 16 bit era (and there was no measurable FPS lag). Voice acting especially amongst the components of presentation has the capability to be an extreme detraction from the expression of a storyline if it's done poorly. I think the spectrum has widened with greater artistic fidelity so there's a much larger capability to massively screw things up.
- Gamers expect more. I remember 10 years ago the only games that had real progression systems were RPGs, now every decent game has something like it, to the point that we often call them RPG mechanics (which makes no real sense if you think about it). Last generation online multiplayer was rare, achievements were unheard of, and downloadable content was mostly nonexistent. There's a lot more to focus on now.
- Casual gamers have changed things. They're more likely to buy based on brands, box-art, reviews, marketing, and instant-gratification than depth, longevity, and quality. Whereas hardcore gamers do a lot of research (such as reading amateur reviews on Gamefaqs) and shop around for deals (on sites like CAG); the gaming population is becoming a lot more diverse.
- Some genres have evolved, others have stagnated, others still refuse to die when they probably should. WRPGs have really taken off; King's Quest was cult classic at best, now you've got Mass Effect blockbusters and Bethesda awesomeness. JRPGs really have stalled, FFXIII is a good game and the undisputed king of the genre (sales and reviews certainly support that no matter how any one individual feels about it) but the plot is still disturbingly cookie-cutter Japanimation stock. And I think it's safe to say that the hack and slash genre is dead on consoles (go play Borderlands and say a prayer for the last of the greats: Diablo II--but who knows, maybe Diablo III will be better).
- Not enough willingness to take risks, think outside of the box, and enjoy different experiences on behalf of gamers and developers. Deadly Premonition for example, amazing game with a creative, unique spirit--torn apart by some critics, praised by others. Freakin' amazing game, the kind that would've been a classic 5 years ago, now it's a cult classic because it's controls aren't the best and the graphics are sub-par.