I realize innovation and 'fresh' ideas are hard to achieve when it seems "it's all been done before." But I would have to say the quality of gaming has surely improved, but the content is still lacking.
As mentioned multiple times before the focus on multiplayer aspects do indeed detract from a game and make the whole lesser than it would have been otherwise. Dead space 2 is a great example as the turret sequences and odd, awkward camera angles from the first were missing; but were, ultimately, the aspects I remember most fondly. I thought the addition of the boosters in the falling sequences was intriguing, but was ultimately an on-rails experience (not to say I didn't find them entertaining), but their addition as a normal mechanic detracted from what was previously established. As the age of "casual" gaming is coming into its own I notice (and realize why) mini-games have all but disappeared from today's games. But their minor addition into Dead Space made that game top-tier for me.
Also, the complaint from some that retro games are not worthwhile because of poor graphic fidelity are the scum of the gaming community. Just because a game looks pretty doesn't mean it's a good or worthwhile game - if you want that go to a movie - I think the [insert random action movie here] would do more service for you instead of a game. While this trend is not all pervasive (ie. meatboy) it is a selling point for many gamers. Yet some would take Minecraft and slap it in my face for even trying to make this point, and to them I say indie games are (likely) exempt. I recently replayed FF6 again and have to say graphically the game is horrible (only in comparison with today's graphics) but STILL has one of the best stories and among my all-time favorites. So, if the industry wants my 2 cents, work on gameplay, story, character development...etc FIRST, then see what your graphics engine can do with it.
To retract some of what was just stated I would, however, like to say the color palette could be expanded upon. When did grey and brown become the only colors of the rainbow? For F**K sake people!
But back on track.
While yes, we do have a MUCH larger catalog of games to choose from in the nostalgia pile (Legends of Dragoons, Chrono Trigger and Cross, Skies of Arcadia, Battletoads, Contra, Joe & Mac, Mega Man, Final Fantasy 1-7, Killer Instinct, Primal Rage, Metal Warriors and Thunder Spirits - for those I can think of for console games alone), the welcome addition of games like God of War, Bioshock, Portal and Demon's Souls is hopefully where the industry will eventually be led.
Previously it had been difficulty that lengthened a game or made it challenging, but now it seems content is purposefully removed for DLC, or is simply rushed to completion with an overall loss for both parties. That length is still there but has simply been augmented (less-fun) grinding for 25 parts of A, 16 of B and the ever-elusive C. The hand-holding in today's games also explains why so many fondly remember the older generation games (imagine Mario games that told you to hit this box to reach star warp world).
So NO games are not getting worse, but the quantity of games released each year is definitely increasing - and with it - it is harder to find those few (very few....OHHHH so few) diamonds in the rough that will be remembered as fondly as those old school games. Those games that enhance your life AFTER you're done playing; those that make you proud to say you're a gamer.