As harsh as this sounds, I have to agree with it. I have acquaintances (and a friend), whom I corresponded with, who are indie devs. I am fairly certain their indie businesses aren't as good as they should have been, even when compared to Introversion and Arcen Games. Yet, they're still alive and kicking. One of them has a day job, so the part-time indie dev-ing is sort of like a hobby, if you will.
It is a tragedy if a company that develops good games, like Frictional, should go bust. OTOH, I think that anyone involved in any career should be prepared to win some, lose some, and if there is a loss made, to find a way to rectify the problem. I'm not going as far to suggest or imply that anyone is asking for charity to be made though. It's just that such media publicity sways the disposition of one into a more favourable disposition, which tips the scales against those who have chosen (or have been forced to) to suck it up in silence, and have still managed to pull through.
However, I must concede that AI War looks good, and I probably would have procrastinated on buying it if I hadn't known they were in dire straits.

The issue with not having the money to last throug failure is an industry-wide problem, not just an indie one. How many times have we seen developers close down after one poorly received game? Iron Lore, Realtime Worlds and however many else.
Even publishers... I just read about Capcom's earnings last year and even though they brought in like 800 million dollars in sales they only made 20 million in profit, which means they spent 780 million dollars! Insanity.

How the hell do you spend 780 million dollars... :/

I found an interview of Roberta Williams about King's Quest VI, and that game came out in the very early 90s. She was excited that their project had a cost of about $1 million. Now, it's not becoming unusual for big games to have a cost tens of millions to $100 million. Plus you have to continuing paying your staff and any creative consultants you bring on to help with designs or anything. So a big company like Capcom, it's kind of easy to see where that $780 million goes.
If developers are one bad game away from going under, they are doing something wrong. But then, that seems to be the business practice of every major business in just about any industry I can think of off the top of my head. You cannot hold what you believe to be a good debt and then solely rely on future sales to hold the business together.
But I wonder how much of that is our fault as consumers. In reviews I've read about games, there are constant complaints if the games graphics aren't amazing, if there isn't something new in terms of game mechanics, etc. That kind of development, where you are constantly having to innovate, takes a metric crap ton of money. It's bizarre too, because what other kind of medium has this kind of scrutiny? We're not demanding new and exciting fonts with each new book, we're not demanding that directors try doing anything (except perhaps to try to make a good movie for once; Michale Bay, I'm looking at you! >.< ) besides film a movie. Ironically, in terms of film, trying new things can get denounced with a quickness in many films: shaky cam is a perfect example, and quick-cut close up action scenes where you can't tell what's going on in another.

More fun numbers: Activision-Blizzard made 4.2 billion in revenues last year (1.2 billion of that is WoW), their profits were 120 million.

Costs have ballooned in the gaming industry because big companies want to have the best graphics, best cinematics, best voice acting, etc. etc. that money can buy, because that's what they think people want and also because that sort of stuff is easy to market. You can stuff a lot of visual and aural splendour in a trailer; gameplay tends to be of little importance. And speaking of marketing, that costs an awful lot of money too: TV ads, ads on websites and in print media, press events, and so on. Then, of course, they also have to make sure the bigwigs in management are properly taken care of.
In short, it costs a ridiculous amount of money to make an 8-hour triple A FPS (to name one example), and it costs perhaps just as much to market it and make sure that it gets some kind of exposure before your target audience (whoever they are) move on to the next newest thing. I remember reading similarly ridiculous figures for God of War 3 ($40M to make or something, not counting marketing? I forget). If the cited figure is real ($20M profit on a $800M investment), I wouldn't be surprised.
That's the main reason, I expect, why most big developers are one bad game removed from closing down. Independent c.q. smaller developers should have a little more leeway, because a smaller initial investment is much easier to recoup (if a loss) than a massive injection of money. That's one of the reasons why big companies tend to stick with what works, and why smaller developers c.q. indies have the supposed luxury of trying out new things.
I think this is something that some big companies and the average reviewer are foisting on us. Complaints like "it's too short", "it's got graphics from the 1990s", and all that sort of nonsense is simply appealing to, I hope, a small but financially important segment of gamers (the "graphics whores" or whatever you want to call them), in addition to people who simply think, "Hmm, will have to give that a swing when it's lowered in price." Most reviewers don't spend a lot of time with games to get a feel for the gameplay as such, i.e. the finesse of the game's mechanics and rules. It's far easier to criticise the look or length of a game instead; print a screenshot, point at it, and say "Ah, isn't that fugly!" (or "gorgeous", or whatever).
Whenever issues like graphics come up, I think it's important to keep in mind that, as far as I am aware, most people do not have top-of-the-range PCs; instead, they own Nintendo Wiis (still the most popular console as far as I am aware, but correct me if I'm wrong) and portable systems (the DS first and foremost), and play casual games and puzzle games on their office computers and laptops, as well as World of Warcraft (which is hardly at the forefront of graphics).
Nintendo in particular is pretty much the market leader when it comes to consoles; just look at Sony and Microsoft's attempts to (belatedly) cash in on the Wiimote. And they don't use top-of-the-range hardware. XBox Arcade also seems to be relatively popular (though without hard numbers, that's only an impression I have). 2D games also seem to be doing fine, even on consoles, what with the recent release of Shank on XBox and impending game releases like Skulls of the Shogun (an interesting twist on Advance Wars). And look at best-selling games on the PSP: Patapon (2D!), LittleBigPlanet (also popular on PS3). There is also the popularity of Netbooks and other small devices, like the iPhone/iPad, etc., all of which can't rely on pretty or pseudo-"realistic" pictures alone to carry the day. I'm pretty sure that gameplay eventually wins out on graphics.
And just look at all of us here at GOG.com!
Edit: gah!