One could make a lot of comparisons between now and 1983 when the gaming market collapsed. There was serious oversaturation then too. Video games had been a sudden cash cow and everyone wanted in on it. You also had an economy that wasn't doing well. Whenever you hear economic news today they say things like "
worst [unemployment/economy] since 1983". Those two factors led to bad times for the gaming industry.
Now, I don't actually expect that to happen again. Yeah there are a lot of systems now, maybe too many, but it's not the most there have ever been. In 1995, all of these systems were being sold:
Sega Genesis / Sega CD / 32X
Super Nintendo
Game Boy
Game Gear
CD-i
Virtual Boy
Neo Geo
3DO
Jaguar / Jaguar CD
Saturn
Sony PlayStation
By 1996 about half still remained. So while it's possible that some systems will vanish in or by 2010, we're still a little ways from the most crowded it's ever been.