Actually, I think they're doing as well as they are because of sites like this one. I know I can't go past a machine without putting a quarter in! Emulation certainly isn't killing the retro gaming business any. I highly doubt we'd be seeing so many plug and play and retro collections for current hardware if it weren't financially viable for the company doing it. Emulators are doing their job as collectors of the past. If you don't believe me, look at ebay prices for older games sometime! 
If you are talking about the "plug and play retro collections" in arcades - they are more often than not unlicensed bootleg hardware or even emulation. Sticking a quarter in those isn't doing anyone any good.
But the $20 tv-game units are definitely licensed (AFAIK).
As for arcade game designers themselves: they simply need to move with the times. The arcades always were and always will be about offering something you can't get at home for cheap. Look at the enormous success of Konami's Bemani devision with Beatmania, Dance Dance Revolution, Guitar Freaks/Heros, etc, etc. They combine all the right elements: complex hardware inputs, big screens and sound, and a game that you can slap your money into, have a laugh, and walk away. Perfect for the amateur, but just as good for those who want to practice and become "legends in their own lunch hour".
While they're not everyone's cup of tea, they at least have the formula for arcade success down pat. Daytona is another that just doesn't want to die. Simple fun that lasts a few minutes and you don't need to be some sort of arcade playing guru to have a laugh.
A lot of factors have been blamed for the demise of arcades. But honestly, I think the amount of self-critique by the game makers themselves has been lacking.
"Emulation" as a cause however is something that I still believe affected SNK. And for one very simple reason: they stuck with 15+ year old hardware for waaaay too long. Moving to Atomiswave fixed almost all of their bootleg/emulation/warez problems (and gave them more power and space to play with to boot). And lets face it: there's a lot of people playing Metal Slugs and King of Fighters at home on their modded XBoxes instead of buying the compilation packs for console.
There are certainly folks out there who still put money in arcades when they see one (I do, and it drives my missus nuts). But there's also a lot who say "why bother, I've got it at home for free". You mention eBay prices: I'm a PCB collector in Australia where prices are double what they are in the US. But the problem is for every one PCB collector, there's 100 emulator users.
Don't get me wrong: I'm 100% behind emulation of old titles for the sake of preservation. MAME and every other emulation project out there should be congratulated for that. But I've also voiced my vote many times to have MAME's unofficial "3 year rule" extended to a more reasonable figure. When I saw titles like Golden Tee being held back from public release a little longer due to popular circulation of the real games, it makes me a little happier that the MAME team are often doing the right thing by the arcade industry.
Actually, most are on the verge, even the big ones. Nearly every company is supported by 1 or 2 big titles, typically a series or yearly title. They're losing money on all the rest. One reason is pure production cost.....it takes a lot of people to make a game now. Another is gluttony.....there are just too many titles appearing on too many systems. I wouldn't say there are more games now that absolutely suck, but I think there are more games now that are quality games no one ever heard of. There is only so much shelf space and marketing budget to go around.
I honestly disagree with the current game design techniques, as well as game distribution. These multi-million dollar games are no more in depth than games that used to be designed by two guys in their basement back in my childhood. They offer nothing more to the gamer now than they did then, except a higher shelf price. I honestly don't think it's gamers demanding better graphics and higher development costs. I think it's a self-imposed delusion courtesy of the big dev companies themselves.
And onto game distribution: "shelf space" is a very pre-internet term. Look at the roaring success of Microsoft's XBLA. Nintendo's Wii is around the corner and will offer a similar "download pay and play" system not only for retro titles, but for indi developers who can't afford traditional physical distribution systems.
Fewer middle-men and no physical packaging/shipping means games are cheaper to distribute, and cheaper to buy. In this day and age of cheap broadband connections, why on earth are there not more console games being distributed over the net? At the very least, offer them as a sideline to traditional methods. I understand not everyone has access to nor "feels right" about this distribution method. But at least someone should give it a go for the sake of the developers as well as the paying public.
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