People are tired of emo looking teens in games, It was time for a change!
I hope japanese companies get the message

I wouldn't say it's fallen, it just hasn't progressed. (mostly)

So, so, so false. Explain to me, then why out of the top 10 hd games this generation, 9 are multiplatform on the 360 and 8 are multiplatform on the ps3. Explain to me why the new ips that will rememebered years from now are all multiplatform, except maybe gears of war and uncharted. Explain to me why the most creative games are all multiplatform. Making a game multiplatform has given developers a chance to try something new and unique and still achieve enough sales for a profit, something that has become alarmingly rare for exclusive titles to attempt. 

I do not know if they have fallen in quality, but i do know I cannot take the annoying anime style characters anymore. All my favorite games early on last gen were Eastern JRPGs that I loved. Eventually they all became generic and lately I just find them corny. I think the west will continue to dominate in gaming sales for many decades until China starts making games and buying consoles in mass quantity. For me in the games I played the quality was horrible, (for the most part there are a few exceptions) so for me it fell greatly. I do not care as the west makes so many more great, original, action packed games with good stories anyways so I do not care that the Japanese are struggeling to appeal to the Western market.

Not really, they have just lost popularity and they aren't producing enough games. All my favourite games this gen have been Japanese, it's the same with past generations too.

Games have stagnated in general...
There's Always Exceptions...
Many Western RPG's, and Japanese RPG's have gotten dumbdowned.

Or stagnated... sure the cutscenes, acting have gotten better, in general have gotten better.
But really, though I love games with story's in them, I can't say that technically speaking any videogame stories come close to my favorite story compared to a movie or book, with sophistication and lack of plot holes.

I do think shooters have gotten more interesting, but that's because they put in some RPG-ish or puzzle elements.
Like Mass Effect, Bioshock, Gears, Uncharted.

Yes definitely. As a whole for the most part the games have fallen. Though I think it's more the bigger companies doing stupid things that is the cause. As smaller ones seem to be doing really good. Square has been absolutely horrible this gen. Bandai has been mostly below what they have done other gen. Capcom has also gone down in quality. Konami hasn't come out with any good games besides metal gear this gen. But Atlas still has good games, From software came from nowhere with demon and dark souls. Sega has had several good games come out (though several bad ones too). But when 3 of the biggest Japanese companies are taking a nose dive in quality of games of course the average is going to go down.

Someone needs to take a look at some ps3 exclusives.  3D dot game heroes, Demon souls, Valkyria chronciles, Heavy rain, Flower, Folklore, MAG. They are all new and unique  and none of them are multiplat. There's even more if you count the ones that are new and unique but totally suck in their own right. Infact from what I can tell multiplats more often then not play it more safe then exclusives do. Though I'd be lying if it didn't have it's share of unique of unique games. As for your point about "best" hd games I think it's pretty much as simple as a popularity contest and multiplats get more sales.