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I'm reflecting on the question in the title in order to put together a blogpost (sig links). Currently, my central posit is that RPGs in the classic mould are failing because they are no longer specialists in fulfilling a particular aesthetic need: chiefly, that of cinema. To put it another way, you used to NEED to play this:
In order to get a taste of high production value: riveting plots, music, lavish cutscenes, and often the best graphics. Other genres just didn't offer this kind of deal.
Now, however, you have cinema built into most games as standard, and especially into FPS. You didn't need to play Final Fantasy to get an epic sweeping story; Halo did that too (even if it was rubbish - but hey, horses to water).
The reaction of the classic RPG, best demonstrated in the ongoing splutterings of Final Fantasy, is to get even grander, even bigger, even shinier. The WRPG split meanwhile learned from avant-garde titles like STALKER and focus more on involving the player, which is basically finding a different USP (unique selling point). Furthermore, these games blur genre boundaries so heavily that they start to defy labels (see: Mass Effect, Fallout, Borderlands, Bastion). I am currently musing on how MMORPGs probably contributed to the picture as well.
I'd be interested to hear what people think of the above, and also whether they think there are any other reasons why classic RPGs are struggling with irrelevance. Do we think that there would still be a place for Chrono Trigger today?