I don't know... I've heard an awful lot of griping from oldsters about how Atari kept releasing the same games every 2 years on a new system and abandoning the old one. Factual or not, it was a popular sentiment.
I guess I am technically an "oldster", and never had that particular gripe. I had plenty of gripes, just not that one. Technology was advancing rapidly at that time. Once market demand was established, and the example of what a successful home gaming console looked and acted like was easily observed, the big corporate players of the time tried to outdo one another. Every new technological advancement led to advances in the games for the systems, and eventually, new systems. It was all about jockeying for market position. Companies like Atari had a rough time of it. Consumers were not ready to accept that investments in expensive gaming systems, and the games, would so quickly dwindle in value. They expected the games to get better for the systems they already owned, not realizing the technical limitations. Enterprising 3rd party developers learned ways to squeeze more from the 2600 than even the designers realized was possible. Eventually, 1st party titles caught up and this kept consumers happy...and the system alive longer. But there was a downside. Games which pushed the system required more development time, and the bean counters didn't like that one bit. Focus was placed on selling games through marketing techniques (E.T. anyone?), and getting them on the shelves quickly. 3rd party developers started crawling out of the woodwork, and the consumers, hungry for new games, bought a lot of really poor ones, which lead to a loss of faith in the marketplace. They couldn't even rely on 1st party titles to be safe bets, because they had been burned a number of times by them as well. Even those who had moved on to other systems saw poor support in the way of new titles, poorly performing control implementations, short system life and high costs. The loss of faith and consumer uncertainty was responsible for a large percentage of the mainstream market giving up on the idea entirely. With the 7800, Atari sought to bring those consumers back into the fold through backward compatibility with the 2600, but it was too late.
The hardcore gamers of the time welcomed every new version of the arcade classics, as each one brought them closer to the true arcade experience. But there just weren't enough of those folks to sustain the market. Most of those folks eventually turned to computer gaming, with primarily the C-64 and eventually Amiga computers filling the void until Nintendo and Sega made console gaming attractive to a new mainstream gaming market.
Honestly, I could see it all when it was happening, and happily bought discounted systems and games when the bottom fell out. I paid attention to magazines (the only real source of information at the time) and knew which to avoid. The aftermath was a great time for true enthusiasts with little money to spend.
It's a different world today, and developers who put out garbage aren't able to get away with it as easily as they could back then. An educated and informed marketplace, which holds developers and system makers to higher standards, and an ingrained acceptance of eventual obsolescence as a condition of participating in, what is now, a very common pastime, is what is responsible for keeping a crash of the same magnitude from occurring today.