Looking at the recent sales trends and the financial reports from console manufacturers and game publishers it's clear that HD gaming is hurting financially. For whatever reasons the aggregate of HD gaming is not doing well. If you take casual gaming out of the equation the gaming industry looks decidely unhealthy. Is this good or bad? I believe it's neither good nor bad, but it might be o.k.
Even if the HD gaming industry doesn't turn around and implodes on itself I believe HD gaming will progress on some level. If a shakeout occurs I would hope that it is the less innovative companies that fail. On the same note hopefully the bad and mediocre developers will be the ones going out of business. The companies and developers with real artistic vision will hopefully survive into the next generation and in the end gaming will be better for it.
I know a lot of people will agree with me that business matters should be secondary to the artistry of video games.