After thinking about it more, this model is just in its own little boom cycle, and it will go bust too. I've played some of the top grossing in-app purchase games on iOS and they are down right aweful. The audience that is shelling out this money are "newbies" to one degree or the other.
Just like people who sit in casinos pushing a button all day, the audience for these games will never disappear. However, the market for normal games will not vanish. Players will get burned out on these things a lot faster, because a) its on their phone not in a distant casino and b) they don't win money playing them.
I think Valve has the right model, sell in-game items that are not mandatory in order to play the game successfully.
At the end of the day, your player has to want to play your game. If I developed games, I would be asking what keeps a player around for years rather than how do I monetize the player over the long term.
There are exceptions in these games, some that allow you to speed things up with money but you never really need to until you get tired of the whole game anyways. But those games seem to operate as advertising for other games made by the same company (you occasionally get a popup when you launch the game linking to their other new game of the month). So they're only tolerable because they're not trying to extract money from you as much from that particular game. Sort of the exception that proves the rule.