I believe that console gaming has obliterated PC gaming. I think it's mostly because people don't want to handle a lot of controls like the PC gamers usually do. Software piracy. Hardware changes. Multi-platform gaming. I think all of these things have contributed to the downfall of PC games.
However, in all honesty, gaming in general has gone down since PC gaming started fading. As Ben and Rob were saying, companies are foregoing dev on the PC vs. a console because people are generally more likely to buy it for console. And then, companies still want to have PC gamers in there for the few extra copies that we buy, so they develop for multiple platforms. They spend their dev time on porting to other formats that the game overall isn't all that great.
Best example I can think of right now, Unreal Tournament III. I was really looking forward to that game. I mean, for me, the UT series has been the best multiplayer FPS that just has the speed and arcade-y style that I love. I loved UT2k4. But when UT3 came out, I was like, "Where are the 20 maps for each game type? What happened to assault mode? Why is the menu system this terrible?" ANd many other complaints. I had such high expectations for the game, and they were all absolutely crushed because it seems they just didn't put as much time in developing an awesome game than they did for marketing it to more people.
To me, it just seems like few companies are focusing on making good games and are just hoping to make a buck in the now increasingly popular gaming community, which I blame mostly on Halo. People saw the console success of Halo and wanted to exactly what they did. And, in all honesty, that game didn't do anything that we PC people have already seen... and already seen better of. It's just that people had the console and it sold bunches and bunches. And then Halo 2 came out and it sold. And, since then, games have gotten shorter and shorter... and the general quality of games has just gone down, in my opinion.
There are, though, some companies that do give us some hope in the swamp of terrible corporate decisions. Valve, for example, has made quality games ever since they came out... And I honestly can't think of another company that has ever been as consistent as they have. The point is though, until gaming companies realize they're quality is suffering because of it, PC gaming will get worse. And, as I said, gaming in general.
Also, something not mentioned yet, at least not that my skimming has picked up, MMO's. When I was a hardcore WoW kid, I kinda stopped playing games like C&C Generals, DotA, my monthly replay of HL2. 15 dollars a month goes to dedicating hours and hours into a grind machine like WoW and, you know, gamers - most of whom are probably students, college or otherwise - are budgeting their free time playing from game to game. And WoW is such a pick up and play kind of game, you just kind of opt for that. And since you're already dishing out a monthly fee, might as well get your money's worth of game time in rather than paying 50-60 for a 4-6 hour game.