I don't see why the smaller budget JRPGs would die out, those seem to be the ones least affected by bloating development budgets. Gust makes a good to great game and can make a profit off of 60,000 sales in Japan, there's nothing inherent in moving to a new generation that requires your budgets increase unless you want to push the envelope. If all you want to do is slowly move to new architecture and get whatever benefits you can within the budgets you already have then that works too.
I read an article a while back about how PS2.5 games were developed which were the smaller titles that were better graphically than a PS2 game but not up to the standard of your average PS3 game technically. If that's what you're doing costs didn't really increase at all. Sure there were growing pains (Atelier Rorona looks way worse than Meruru or Ayesha) but you can make great games without a need to increase your budget beyond your expected sales.
...
