PC games are still home to the most creative ideas in gaming. Some of the coolest, most fun games I've played in the past few years are flash titles...ones that are exploring interesting ideas like Chronotron does - that game is brilliant, the way it does "time travel" and puzzle-solving.
I'm in the boat that believes that system requirements is one of the main hang-ups with PC games. The other one is the release of buggy products.
The average game-player doesn't want to have to analyze system specs to be able to run their PC game, nor do they want to have to wait to download a patch so that they can play the game that they just plunked down $50 for. Ever since the late '90s, game companies would a) require people to have the latest hardware to run a game, and then b) often release a buggy product that takes another month or two after release just to be able to run. Do you think someone who upgrades to or purchases the coolest rig is ever going to do that again for a new release if they find out the game crashes anyways?
That is just massive disappointment any way you look at it. PC gamers have learned their lesson: never buy a game when it is brand new (unless the developer has a proven track record of having a bug-free product), because both the game and the hardware to run it will be cheaper in a year, and by that time the game will be patched enough so that the major bugs (some of which may make your saved games invalid) will be taken care of. The game developers have ruined their own market, not the "software pirates" that they so often whine about.
No, most people would rather spend their time playing games than doing tech support. This is why consoles are ruling the day, and why Blizzard rules the PC gamespace. Blizzard releases games that a) do not crash 99.9% of the time, and b) do not require the latest and greatest PC in order to look decent and play at a good framerate. They're also generally easy to get into and play, with a great interface that is easily understood.
PC gaming had an opportunity with being the first online, and they've capitalized on that with MMOGs. They've missed the boat in terms of multiplayer coop, though - only a few people like Bioware have done really great coop adventures, and even NWN which I recently started playing is kind of buggy in online play. There have been a lot of blunders and missed opportunities. Windows gaming may never recover.
Where does it need to go? Well, someone needs to do for games what has already been done for movies, pictures, and music. Someone needs to create a game development engine that would be expensive to purchase but would allow people the creativity to create games that people can play. That's why the flash gamespace has exploded. If they did the same thing for Linux, and people starting making awesome games for the Linux + GP32X or whatever that handheld thing is that runs Linux, I can guarantee that more people would be giving that a try.
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