From the early days of the Atari to today there has been a pretty standard increase in development cost increase from generation to generation; roughly 4 times the previous generations' development costs. With each generation there was also an dramatic increase in the market and a reduction in the quantity of games which meant that most games were profitable (or at least broke even).
For the past 3 or 4 years there has been a lot of people who claimed the market was going to crash in this generation because the worldwide market had not been growing as quickly (some markets were shrinking) and development costs were going to pass into the range where only Blockbuster games could be profitable. Many companies have looked at in game advertizing, micropayments, episodic content and smaller games as a solution to these problems.The reality is that these approaches have (generally speaking) not fixed the problem.
Honestly, if Nintendo is successful with the Wii (and truely expands the market to the non-gamer) they could actually do more to enable developers to continue their escalation of development costs; kind of a paradoxical situation being that the Wii is specifically designed to keep development costs low.
