Although I'm no tech expert, from a PC perspective, part of the reason is that processors in particular are forming a bottleneck. Anything above 4k causes serious overheating problems,and multi cores aren't really that efficent, so improvement of those has stalled. Not much point pushing RAM or the graphics chip that hard if the CPU won't be ableto handle it, I think. Although again,Imay be wrong.
The other problem is that as graphics get more detailed, creating content gets more and more work-intensive. Maybe it would be possible to make a game far prettier than crysis, but it would take you far too long in man hours to be highly profitable (contrast: PopCap).
Another possibility is that piracy and more versatile consoles are making PCs, where the bleeding edge traditionally got pushed on a year to year basis, less attrative to publishers.