I always felt that the PS1 era gave them the perfect development platform to fulfill their potential. The Final Fantasy games could be made with ambition and the worlds could be fleshed out and realised as living, breathing entities. Below their marquee games, existed the second tier RPG's such as Parasite Eve, Xenogears, Chrono Cross; they could be developed in good time and sell well enough to justify the investment. They would also branch out with interesting projects like Einhander, Tobal No.1 etc. A diverse catalogue of games that could compliment the Final Fantasy games, but wouldn't leave them dependent on their marquee franchise.
After the PS1, that's where the cracks started to appear. Development costs go up, games take longer to make and the quality and diversity of their catalogue starts to go down. Though, whilst not heavily dependent on the Final Fantasy games at this stage, the PS2 era is where they really start to stumble with their mid-tier range of games. World of Mana, The Bouncer, Romancing Saga etc. The brands they cultivated and nurtured during the PS1 era start to fall by the wayside. Parasite Eve, Xenogears, Einhander, Chrono Cross - all critically acclaimed games. Kingdom Hearts is the only real breakout game. Depressingly though, what started as a friendly introduction to the genre aimed at inducting casual gamers, becomes a dense, reductive, mythological tome that frightens off casual fans.
The PS3 era is where it all falls apart and where the mismanagement of their back catalogue reduces them to two franchises of any value; Final Fantasy and Dragon Quest. The brave experimentation from the PS1 era is mostly reduced to handhelds. HD development has proved an ill fitting suit, and I don't see any reason why that should change anytime soon. They're not quite dead to me yet, as a lingering fragment of that spirit that made their PS1 games a joy to play, still exists within the handheld arena.