The best way of thinking about it that I've found: Did Flash games kill the PC gaming market? No. Will iOS/Android/etc games kill console games? No. Perhaps they'll encroach on the handheld market (PSP, 3DS), but I don't think they've got the same "depth" that most console and PC games do.
Don't get me wrong, it's a lucrative market to be in, and it seems much easier to break into for most developers (although indie PC gaming is also a good size scene) than traditional console/handheld development. I just really, really am not convinced that they'll kill off console games. I've never heard someone who's actually a more hardcore "gamer" entertain the notion, and that makes me think that most people making these claims don't understand the market for them whatsoever.
Personally I think historically one of the problems with Flash games was getting paid. Most people would love the revenue stream from an ad supported version of Bejeweled... but what else in Flash games is there that makes money?
There's farming games on Facebook I guess, but to read the devs blogs you'd think it was a never ending series of the playing field being moved all the time, and dodgy APIs.
To monetize their skills most of the Flash devs I know went to work for ad agencies, or switched to a different language and Flash became a hobby.
I think this is one of the "eleven secret herbs and spices" of iOS development, why they had an absolutely massive number of devs and apps, because there was this pent up demand from the indie devs, and no really good or easy way to fulfill it.
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You say "perhaps they (the iOS and Android games) will encroach on the handheld market (PSP, 3DS)"
I'm confused, didn't that already happen? Haven't the handhelds been in a death spiral since the iPod Touch took off big time?
Don't get me wrong, it's a lucrative market to be in, and it seems much easier to break into for most developers (although indie PC gaming is also a good size scene) than traditional console/handheld development. I just really, really am not convinced that they'll kill off console games. I've never heard someone who's actually a more hardcore "gamer" entertain the notion, and that makes me think that most people making these claims don't understand the market for them whatsoever.