I think arcade games started as a huge fad, and when the initial novelty wore off the industry spent some time trying to find its new direction while the novelty was at least still in people's memories. Now the novelty is completely gone (at best there's nostalgia value, along with games with special controls like DDR or gun games), and arcade games need a better justification for their experience - I think the time when arcade machines were ubiquitous is likely gone forever. Not so much because of home consoles, but because of things like cell phones, which are ubiquitous, and which support a high enough level of gaming that most people won't be tempted to part with their pocket change.
Also gone (for the most part) are the simple types of games that were really well-suited to arcades. Simple, one-screen games, games people could pick up and play the first time with no learning curve, games people could play for five minutes and then forget about, or restart without feeling they'd missed anything. Games have developed to require a deeper commitment from the player (for the most part) and that really works against the "impulse buy" mentality that arcade machines need to work in the present. There are exceptions, of course, but most of that sort of game development is happening on embedded platforms - again, the cell phones, etc.