Well, piracy has been around since the dawn of gaming and it's gone from being a garage industry to a multi-billion dollar industry despite it's prescence. I think we're in more danger from DRM and all this forced digital distribution stuff ruining it than the pirates.
As far as the rest goes, well the mainstream has gotten online, and as a result things like gaming are becoming much more mainstream, and like anything that started with a smaller, more intellectual following, it's quality is going to become lower as it increasingly dumbs itself down for the lowest human denominator.
When it comes to art, well that's the old conundrum, the starving artist starts out following his vision and not carying what anyone thinks, until he starts to sell stuff and become known. Then he gradually starts to work around what other people want and what will see his work the most widely circulated, until eventually he's a mere shadow of what he started out as, and just another producer of bubblegum trash.
This is why you have so many arguements about how painters, sculptors, artists, etc... should not be allowed to make any money off their work, ever... that way financial concerns won't interfere with their visions. A point countered by "hey, your saying we should work ourselves to the bone to produce these things of beauty and give you joy and we don't deserve to get anything out of it?". It's circular and can get nasty on both sides, and it's where the statement "support the art, not the artist" comes from.
I think video gaming is best compared to the music industry at the moment, right now we're seeing a situation where gaming companies are indie bands who saw the potential to make a lot of money, and using the money they earned from the fans who supported them decide to launch a bubblegum pop career, to produce music for the masses, regardless of the fans who got them to the position of being able to do that feeling that their work that is raking in the dough is utter, soulless, garbage. A situation where the original fans who supported an artist will say they sold out, and the artist will say "hey, I don't owe you guys anything" which is of course a lie, because they never would have been anywhere without the initial fans they betrayed, however it's easy to soothe that conscience with tons and tons of money. Sadly, it's a rare case when there is any justice in situations like this, with say a band that crapped all over it's initial fans falling on hard times, trying to re-capture some of it's old glory from it's "loyalists" and instead getting laughed at since they don't have any anymore.
The game industry won't die, but it's not going to be anything like it was before. Sad, because it had some unique oppertunities here. It could have been one of the few mediums that encourage people to rise to it's level, as opposed to stooping down to their level to grab their money and never bothering to try and rise beyond wallowing in that muck.