I think their displays have been really sagging for a couple of years. The aluminum displays really didn't bring anything new to the table and even with their price cuts they haven't been able to compete at all on a price leve: that is why I have a Dell 2005fpw that cost me half the price of the competing Cinema Display, has far more features and isn't half ugly. Apples competitors sure took a while but they have caught up and in many cases, exceeded Apple.
I think there are two ways to do something about this problem. The first, as many people have suggested is for Apple to introduce more budget conscious displays. But the problem is Apple can't go back on it's widescreen format now that it has become so essential, and anything under 17" does not work with the 16:10 format very well. I think it WOULD be a good idea for Apple to change their display line into two lines. I think they should significantly drop the price on the 20 incher, along with maybe finding some ways to cut costs through cheaper materials (they can do a lot with white and grey plastic, mind you, and it would be a whole lot cheaper than aluminum and still quite nice). Bring in a low end 17" monitor with the same features as their current cinema displays (ie: none other than showing a signal from a computer). The 20 incher would be the high end of their consumer displays.
This leaves the 23 and 30 inch monitors. The 23 is an amazingly great monitor: I've always thought it to be just about the perfect size and it should be a necessity for all video pros with it's HD resolution. Take advantage of that market. Add all sorts of different inputs for it. I know Apple can always just take the easy way out and say "if you want to be able to configure your monitor, buy a vesa mount for it" but most VESA mounts are pretty ugly, at least in comparison to a cinema display. The only thing that the display really has going for it is it's looks, so don't make someone go out and buy an ugly pro arm just to be able to tilt it. Figure out a solution.
There are plenty of things that Apple will need to do to stay competetive with their computers, and ARE doing. What I think they should establish is whether they're going to stay in the monitor game and if so, how they can compete. Because when Dell manages to have a better product for cheaper than you, you know you're not innovating enough.