I'm not sure I follow how the presence of both low quality and inexpensive games is "wrecking" the industry.
Are top quality games no longer being developed and or selling?
Rhetorical question: they are being developed and many of the deserving products are generating profits.
Is the market being diluted by short development/cheap games sold for less than $1? That depends on if you believe anyone paying $.99 for an app is expecting the same level of quality of a game that retails for $60. I genuinely hope no one is actually seriously expecting this or even suggesting that any significant number of reasonably intelligent consumers are either.
Anyone quoting a bit of history from 1983 is conveniently overlooking the fact that the flood of crappy games that helped tank the market (to include majorly hyped, high demand licenses such as E.T. and Pac-Man) retailed for full price due in part to cartridge/retail distribution. Naturally there would be a consumer backlash after paying high prices for shoddy content. Atari Pac-Man was programmed in about 6 weeks by one man (Tod Frye).
Would you pay $60 for a game programmed by one guy over 6 weeks? Given the number of man hours it takes to produce the typical $60 game, I know I wouldn't.
NOBODY expects an app they downloaded off the App Store for $.99 to be the equivalent of a $60 retail game.
They're also overlooking the fact that comparing the gaming industry of 1983 to the gaming industry of 2011 is like comparing the silent film industry of 1906 to the film industry of 2011 in terms of revenue generated and overall size. Back in 1983, video games WERE a novelty/curiosity to the general public. Now they generate more revenue than the film industry.
About the only niche of retail gaming that I believe could be at risk due to iOS and Android games is the $20-40 handheld game market if enough consumers simply aren't interested enough in high production value mobile games to pay the substantial premium.