I have no real problem with the style, and think it has a lot of potential. The problem is that few people really use it to it's potential, and rather use the "found footage" as an excuse to skimp on FX or actually showing anything going on. Inevitably "found footage" relies on more shaky cam and intentionally blocking out anything decent.
There have been a few exceptions like one movie called "Grave Encounters" (I think) which did it well, actually showing plenty of awesome FX bits during the climactic moments. There have been a couple of others that used the gimmick well, but they generally aren't well known.
I'll also be honest in saying that I find the growing conspiricy movement about such movies to be quite interesting. The idea being that in a world where virtually everyone has a camera, and viral internet, and you see tons of amateur "found footage" movies and clips being produced, how many people would recognize a REAL video of something freaky for what it was. The genere might suck overall, but encourages a large degree of skepticism. As an idea it's relatively plausible in of itself having read what goverment organizations did for disinformation during war time (including The Cold War) and occasionally still gets outed today.... without tying it to any conspiricy or motive in paticular, as that isn't part of what I find intrigueing about the mental exercise. I find it kind of amusing that today if you were to hypothetically rely on having pictures of a hidden goverment base and threatened that "if anything happens to me, the pictures I have will go up onto Youtube and every other web site on the globe" it would be meaningless because nobody, especially the newspapers/tv channels/etc... would believe it as genuine.
In a more fantastic case, if there WAS actually a Slenderman, a haunted "Candle Cove" broadcast, or anything of the sort, simply by being mentioned on Something Awful or other sidtes, and going viral with all the amateur creations nobody would take it seriously. I mean Slendy could be behind you right now, take you out on your webcam, and if the video was uploaded everyone would just assume it's one of a million similar videos people made for lulz (queue X-files music).