If a game offered the immersive, cinematic experience that a movie does, then yeah, I'll easily pay $10 for it. The Mass Effect game for example is awfully tempting.
But as it is that is not what most iPhone games are. Most iPhone games are time wasters so you're not interminably bored at the metro station - that to me is not a high-utility use case.
The amazing nature of humanity, and business, dictates that most people are not you.
You must be shocked daily at what other people choose to spend their money on.
I make a living off this very fact, because nobody else in my field has the balls to presume that people would spend money on their stuff. (And I can shout about it all I want on HN and know that nobody will ever use my "secrets," because they'll never believe it.)
There are lots of people out there with 'loose wallets' - you just have to reach the right ones and convince them.