At least I think it has.
I thought horror games were at their best just before Resident Evil 4 come out. Ever since 2005, a lot of other horror related games new and older have drifted into the realm of action. Of course, that is mainly because action games sell loads of units, but I think by making the best horror games like Resident Evil into an action oriented series, they've destroyed what made 'em popular in the first place.
RE4 was a major change in direction, but it was the *first* game in the series to really take the action path and it worked because it was new and innovative back in the day. Then RE5 and RE6 came and went. Both severely lack the atmospheric horror that all the other games prior to RE4 had.
Silent Hill has kind of went downhill too. Not so much because of action, but because the original team moved on and now it's just different developers who handle new entries, to mixed appeal. Some sequels have been a letdown, but Downpour at least played out like the first four and I liked it. It really does belong in the series.
I'm not sure where the genre is headed next, but I can see Capcom continuing to rush release action horror games and whatnot. So hopefully Zwei by Shinji Mikami is a return to form for this once thriving sub-genre.