For me, and the kind of games I like, Japan still has the edge. I like stories and adventure and puzzles with something unique to them. The majority of the games I own are Japanese. Although the last JRPG I played and actually enjoyed was Tales of Symphonia
Just of the top of my head: Zelda, Mario, Okami, Ico, Shadow of the Colossus, Silent Hill, Professor Layton, Pilotwings, Resident Evil, Animal Crossing, Katamari, Phoenix Wright, Last Window/Hotel dusk. Wario-ware. I'm sure there are others I've missed.
Not that there are not great western games too. Portal and Portal 2 were awesome, Heavy Rain and LA Noire we're great (though flawed in places) The GTA series is enjoyable enough, and Half Life. Then there is the Monkey Island Series, and stuff like Braid.
The problem for me is gaming in general is becoming more homogenized, the games I like are few and far between. Whenever I go to the game shop there just seems to be countless cookie-cutter FPS games that I have no interest in whatsoever.
I put this down to the growth of the industry, there was a time when games were for
gamers, and now it seems that a lot of developers are too scared to try something new in case they lose sales. A bit like the film industry. (and the music industry...and everything else
Maybe its some sort of time compression in my mind, but I feel like in the 90's good games were released more frequently, and most of them were Japanese. I'm probably not the best person to ask, because I am a nostalgic pus-head