I have observed exactly what Seth Godin is explaining here, with my 5 and 7-year old pining for iPod Touchs:
The lack of a clear winner in the toy biz is a symptom of a move to weird (without mass TV, etc., selecting the one clear winner gets more difficult). There’s still a crowd, still groups looking for the safe choice, but the trend to weird has dispersed them into smaller pockets.
There are no contemporary Cabbage Patches or Tickle-Me-Elmos, no have-to-have-it-toy. Toys are irrelevant, and that means more than the end of Toys R Us at the hands of Walmart and Target. The closest things to those must-have toys are personal electronics, and for children that means iPod Touchs and iPads (and other alternatives like the Nook and Kindle Fire) and to a lesser extent the various Nintendo handheld gaming units or other consoles like the XBOX 360. Playstation 3, or Nintendo Wii. Consumer electronics (and content) has cannibalized the traditional toy business. Expect this trend to accelerate – the internet is coming for your toys.