I think it's the content producers that are mainly to blame for killing this sector.
My Boxee has BBC iPlayer, my Wii has Netflix and I'd need to buy something else if I wanted LoveFilm. Many video sites have stopped working on Boxee as they require a version of Flash that isn't available for the Linux version that Boxee uses and they don't have any alternative delivery mechanism. LoveFilm switched to Silverlight to get the DRM strong enough to win over some of their content suppliers.
It's crazy that I can't switch on a device that allows me to pay to stream any film produced in the last 20 years, view the free-to-air programmes that I can already watch on my TV set and play my local media collection with a half-decent 10-foot interface.