I don't understand why so many people compare JRPGs to WRPGs. There's usually huge differences between the two. Turn based systems, linear storylines, visual representations, art styles, OSTs, ect. It just seems a little pointless to compare apples and oranges.
I'm a fan of western and Japanese RPGs. If both were similar, there'd be no charm left in JRPGs. Sometimes I feel like running through a colorful world full of crazy architecture, strange beasts, and uncomfortably long periods of laughter! There's an imaginative charm to Japanese games that is different, and I hope that never changes. It's sad listening to people hoping for the westernization of my beloved genre.
Someone commented that WRPGs have been great this gen. I beg to differ. They were much better last gen with the likes of Kotor, Jade Empire, Baldur's Gate, ect. Everyone praises Fallout 3. I respect their praise. My opinion is that Fallout 1,2 were leagues better though. Fallout 3 and especially Oblivion are more about technical achievements/freedom than story/characters/gameplay. Mass Effect and Fable 1,2 were beautiful and plenty of fun, but ultimately disappointments.
I've heard great things about the Witcher, Dragon Age, and a NW2 expansion. Let's hope the first two rock on consoles! 
Anyway, I do believe the quality of some JRPGs have dropped a bit this gen. I sincerely hope that the future games we're all looking forward to circumvent this. Answering OP... Yes, I think JRPGs are a niche on this gen of consoles. People are more interested in shooters and action adventure games like GTA and Halo. Western RPGs seem to be gaining popularity thanks to their resemblance to other popular western genres.
EDIT: I forgot to plug Morrowind! Much better game than Oblivion. Ok...I'm done. 