A videogame crash is possible. This is the general idea of it:
Preceeding the videogame crash of the '80s, the Atari was the main contender, and the videogame market was comparable to a gold-rush, think, the dot-com rush, but maybe not as extreme. There was a flood of games coming out, many were copies of copies, and many were very uninspired. The huge availability paired with the piss-poor quality lead to one thing: The demand sank like a lead anchor.
Just when gaming was at it's all-time low, new contenders appeared on the scene, effectively saving consoles from utter extinction. The arcades however, didn't really start to recover until very recently. The new consoles on the scene were the Nintendo and the Sega Master System. These games boasted an amazing 8-bits which allowed for much more detailed sprites and anvironments. Because this actually saved gaming as we know it, as an effort to keep games from becomming stale, Nintendo and SErvice GAmes released games which doubled their capabilities, each with 16 bit graphics. And so it goes, every 5 years, a new console is released, greatly improving upon graphics, but...
We're reaching the end of the line. Graphics are getting closer and closer to the invisible wall of realism. The question is not any more "How much more realistic will we get" the question is becomming, "How much more realistic can we get?" The jumps have become increasingly less dramatic, from platform to platform, meaning that, if graphics are the novelty that keeps gamers interested, it's about to get a lot less interesting.
But this theory only really applies to those who play games because of the good graphcis. We all know one or two, but it's not the majority of hardcore gamers, so there's no impending doom. However, the down side is that we
all know one or two, and that means that that the audience loss will be noticeable. Likely, however, games will only get even better, as they will likely rely on innovation, and may eventually expand the market by appealing to different people's interests, and expanding the ways that games can be played.
This is what Nintendo is doing with the Wii. They see that graphics will only take a system so far, it's games that will ultimately draw gamers. So far, they are getting very positive feedback. Other examples of this kind of innovation include Dance-Dance revolution, and Guitar Hero.
Personally, I'm still waiting on a high-def 2-D game. I don't worry though, we'll get there.