Yeah. From another angle, both Blizzard and Valve don't care much about high-end graphics.

This is definitely because of the high cost of HD development.  A cost which as time presses onward will continue to decrease.  This is a transitionary period for video games. The upgrade to HD is not cheap but given some time it will definitely get cheaper. 

For companies that cannot produce quality HD games,  they will either go out of business, get gobbled up by other larger developers who can sustain or will have to produce cheaper games.  (PSN/XBL or Wii games potentially).

Downloadable games will gain popularity.  Games like Flower, Flow, Pixel Junk Monsters/Eden,  Castle Crashers, Braid, etc.  These games are cheap to create and easy to reclaim profit on. 

This is how the market will grow.  More casual games / downloadable games / additional content  which will sustain the HD development of larger games.  Until HD costs drop (And they will).

I've heard this theory a few times, but I've never seen any evidence that it's actually true. Several developers have blamed artistic costs of making HD graphical assets as the reason for high HD-development costs. How is that going to change with time?

I wouldn't say that.  Blizzard is more of a case of making games that run well first and are graphically pretty second.  Given the game genres that Blizzard makes (MMOs, RTS, Hack N Slash with tons of Enemies on Screen),  performance is everything.   But don't make the mistake of acting like their games aren't graphically powerful when they are released.  They are still very good looking games with superb artwork.

and Valve certainly cares about High-End graphics.  Half-Life 2 was easily the best looking game on the market during it's release.  So while outdated a bit now,  You can guarantee that HL3 will be the best looking game on the market when it arrives as well.

Funny.  I thought the Wii was how the market will grow.   We would of been better off waiting a generation on HD.

Releasing high-budget HD games?

of course new owners of hd consoles will also buy the good games that have already been made....you might think......so they can still make money out games that are good.......for a while yet.....we will have to wait and see what they are....hopefully vgchartz can keep us informed....

But other of Valve's games like Portal and TF2 don't rely much on graphics. Half-Life is a huge franchise, and of course it's no problem to invest a lot of money on the huge franchises which will generate loads of revenue anyhow. There are only a handful of such franchises though.

Both Portal and TF2 just rely on the HL2 engine. (Which was very very impressive when it came out).  It's such an impressive engine that years later they can still make games thats graphics are still good looking.  TF2 has different art direction but the graphics are impressive in the game.  Portal is essentially just HL2 reskinned in some way, but I don't consider Portal a full game really though. Counter-Strike has excellent graphics are far as I'm concerned.  (While not Crysis esque they are quality).

Regardless,  The industry needs to change it's production model.  (I'm sure they will).  Older methods aren't going to work as well as they have.  You mentioned artwork being a high cost of development.  I agree artwork is an area of high cost but it's not the only area.   Look at how much money these developers are spending on R&D, it's astonishing.   These types of costs and investments will certainly decrease as time goes on.  Also things like Motion Capture technology are an expensive cost that will certainly continue to spiral downward as time goes on.  One other factor is tons of game engines have been crafted from the ground up causing games to be that much more expensive.   I believe this generation will last quite awhile because of this and developers who perfect their HD game making will be all the richer when it's all said and done.

The market is there with record revenues, all that needs done is reduction of costs.

My point is neither portal nor TF2 are games which require lots of very detailed graphical assets.TF2 relies on a few official maps which aren't that big and reuse lots of elements.

Your last sentence is very true, but the rising expenses have been a constant trend for many years, until they became bigger than revenues. This tells me there must be some fundamental changes in the industry, not just the normal cost reductions which happen naturally in a business-as-usual scenario.