I see what he means, arcades (as in the place where people go to play games) is dead. But the spirit of arcade lives on in cheap, highscore-based, competitive games.
Arcade-style games might live on but the arcade itself and the arcade experience is a rare find these days. Sitting at home (or online) with my friends, controller in hand, is not nearly the same thing as perusing a room full of arcade cabinets, pocket full of tokens, contemplating which game is worthy my hard earned money.
As for upgradeability I think that will eventually happen. It already is in the mobile sector. As I'm sure I said in this thread - I can very well imagine consoles will eventually be nothing more than a set of standards and requirements per manufacturer, that all games made for that console will run at the very minimum but have room to play games at higher resolutions.
I'd be very surprised if Sony, MS or Nintendo licensed their hardware specs to other manufacturers. I think cloud-based gaming as a service is a more likely thing to happen.
There are certainly still places with arcade sections (like D&Bs or Jillians) and a handful of actual arcades exist though they are usually in various states of disrepair (dirty looking, broken games, etc.,). It's not like it was 20yrs ago when stand-alone arcades were still thriving and one existed in nearly every mall in America.
Dave and Buster's is okay, but you can tell they are not interested in the games, more the food, drinks, etc. and games are an afterthought. They have some good newer games (like House of the Dead 4, etc.) but nothing specialized.
It's sad to see arcades lose popularity. Nothing can replace dedicated (expensive) hardware for a single game.
Logically speaking, you would think it's the other way around, where most people go to the arcade to play games (best experience), and people use their home consoles less only when they can't be at an arcade.