Very true.
The '83 crash was due in part to the low quality but high profile games like the 2600 Pac-Man port and 2600 E.T. (having owned and played both, I can attest to their abysmal quality). The decision by Atari to release both of those games as they were, was largely motivated by greed and arrogance. Rushed to make holiday sales and vastly overproduced under the assumption that even those who didn't own a 2600 would buy one to play these high profile games.
There was also an overabundance of game consoles at the time as well, splitting the market up despite Atari's dominance with the 2600.
Personally, I don't think that a glut of mediocre or ever poor games will cause a repeat of '83. You may end up alienating casual players new to the industry who make the unfortunate mistake of buying too many of these games that don't deserve their entertainment dollars, but the core audience will always know better. There is too much information out there to continually sneak poor quality products to the public and expect them to sell.
Until major publishers start releasing high budget, high profile games that completely fail to meet critical and commercial success, the industry will continue to do just fine.
My only reservation is the rate at which the industry is expanding; it can't continue like this indefinitely unless you believe that eventually video games will surpass movies and TV as the primary form of mass consumer AV entertainment.
As for Japan... The Wii really is the only thing keeping that market alive as anything other than a niche form of entertainment. It seems the core gamer in Japan is becoming an endangered species.
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