While I think some portals (not so much Kongregate though) could tone down the clutter I don't think this is going to take off. From what I can see only about 5.8% of players go full screen.

Flash games also look crap stretched out and you can't play discretely (work/uni/school) or jump back and forth between email/browsing/im etc while you wait for that wave of creeps to finish dying.

Not to mention download random.exe to play a Flash game on a website?

You really can't compare the immersiveness of full screen titles vs. Flash games. Flash games fill a different need and they do that in spite of richer options being available. I really think you're solving a problem that doesn't exist.