EDIT: I do not wish to come off as insulting; it's obvious you've put work into this, and I appreciate that. You just have serious flaws in your logic and I wish to fully point them out.
Ah, the "it's all the corporation's fault" approach. The whole "big guys with money and small guys with ideas how sad" thing is a bit old, and is not relevant to the success of the consoles.
I do hope you didn't just try to claim that the consoles have greater piracy than the PC? Because I can assure you, console piracy is not a concern to console publishers, and is not a concern to end-users (and I refuse to hear otherwise until I'm given any sort of extra DRM protection or serial number that must be entered before I can play the game, online passes are not counted because online passes do not prevent me from playing the single player)
You shrug off the fact your prediction of doomsday has not happened yet by saying "it still exists and is still flawed", but so far, you can not give me any more harder evidence than what sounds like (and I hate to be condescending, but I'll be brutally honest) a memorized answer to a test essay question to a basic-level economics class exam (with the way you say "replenish itself, it stagnates and dies"). You have no proof that it cannot replenish itself, whereas the industry has a a couple predecessors which prove the console market absolutely replenishes itself. You make it sound as though the console market is a wasteland (ignoring the fact that it's not really), but your entire point hedges on the fact that the consoles are on the brink of hitting their next generation, which my response is simple;
Of course there will be some overlap, some slowdown, and unprofitable years in which adoption increases, and withholding of new IP, publishers are waiting to hear about the next generation of consoles, a generation which I have no doubt will last just as long as this one. It wasn't easy to switch to DVD from VHS, it wasn't a short process to switch from analog TV to digital signals, it won't be a quick process to switch to the next generation.
It's almost the way Apple handles their hardware upgrades; after 5 revisions they're still managing to convince people to upgrade from their older iPhones to newer models, and it's not about brainwashing, it's about keeping an audience captivated and compelled, something that each console has managed to do since their launch (Nintendo not included).
There is nothing to be afraid of, and you have not given me any solid up-to-date evidence to prove to me that it will be.
I do note with interest that you have switched your point from "the console market is currently dead" to "the console market will be dead with the next generation comes". I'm vaguely reminded of our "End of Days" warnings that seem to come and go past their deadlines.
What I'm more inclined to believe is the latest market data from the NPD: http://arstechnica.com/gaming/news/2012/04/why-are-video-game-sales-looking-so-weak-lately-blame-nintendo.ars. Ironically, it appears to confirm your thoughts, with one key difference; this is only happening to Nintendo.
Will consoles cost more when the new generation hits? Absolutely. Will games be slightly more expensive? I have no doubt. Will we eventually move back to where we are now with the current gen? Without a doubt in my mind, yes.
