Better technology gives more freedom to the developers.
This is only half true. Better technology
can give more freedom to developers, however the actual quantity of developers will seriously diminish. As you adequately put it,
"This will most likely make it very hard for niche titles to be released." Which brings me to...
The market. It doesn't sell. We've come to expect the 'best' out of the 360 and PS3. We think we know what they can do and won't settle for less.
This I agree with. We expect the best out of the 360 and PS3 because
we have very little alternative. The cost of developing a game on this new technology is
so risky that independents might as well code their games with their heads under a guillotine and the publisher at the lever. This shunting of independents leaves us with the big-name development houses who stick to proven franchises and formulas backed by flashy marketing campaigns of beautiful graphics, true artificial intelligence and dynamic environments. Thus:
Better technology = more developer "freedom" = rising development costs = less total developers = lack of industry innovation =
less end-user freedom.
This is only when taking internal console components into account. When factoring in new media such as HD-DVD and Blu-Ray, or even output such as 1080i HDTV, the above pattern is infinitely compounded.
Technology may not stagnate, but developer output inevitably does. Nintendo is definately guilty of this, possibly more so than any other due to their being one of the oldest game developers. What they do different, though, is focus on innovating gameplay rather than graphics. Was Halo 2 really that much more innovative than Halo? No. It had all been done in first-person shooters before. However, it had bump mapping and bloom, which made it look nice and shiny. The mainstream had just never experienced this before, and hailed it as a game that "redefined the genre."
Though as long as millions of people keep buying Madden, Fifa and GTA clones, we're pretty much stuck with what we've got.
I truly believe that video games are, as a whole, on a downward slope, and that it is due to exactly this; the gloss and exposure of finally becoming "mainstream". The underlying cause of all this?
Better technology.
I want my hobby back.