I don't think "Single-A" games have been around for long enough to suggest their place in the overall market. It's clearly not the case that smaller games can't make a profit, as others have pointed out of games like Torchlight and most of Popcap's lineup.
I think the market is still evolving, and fast. More and more games are being sold online, helping to break down the stiff requirements for entry into the market, especially on consoles. It's absolutely the case that a "single-A" game is going to have trouble getting noticed in the wake of the marketing blitz of a Mass Effect 2 or a Modern Warfare; indeed, they may have difficulty even finding shelf space. But we're increasingly moving to a world where brick-and-mortar shelf space is not the end-all-be-all of the games market.