I pretty much agree with what everyone's said so far. The sentiment of "they just don't make [insert some art form, i.e. music, here] like they used to" is not at all new to our generation. In any form of art, works are gradually filtered out over time, giving the illusion that artists of older generations created more consistently "good" works than those of the present generation. Nevertheless, there are certain societal differences between the world today and the world of a century or two ago, which are very interesting to discuss.
Black Orpheus, in my experience of musical academia, it actually seems like the gulf between popular music and music being composed in universities is getting smaller (which, in my opinion, is a good thing; each can learn valuable things from the other). Perhaps my university is a bit of an exception; I don't know. We are currently looking to hire a new composition faculty member, and one of the topics that candidates had to present on as part of the selection process was something like "discuss the integration of a style of classical/academic music with a style typically considered outside the realm of classical/academic music". Also, as it happens, we DO actually require composition majors to take classes in electronic composition; again, perhaps this is unusual for music curricula today.
Ananth, I really liked your comment about "sterile" music. I would add to it that I think, in some ways, composers like Cage are almost more like philosophers than musicians. Rather than trying to create an aesthetic work of art, they aim to challenge ideas we take for granted about the nature of music and of the arts in general. This is certainly a worthy goal, but I agree with you that, when academia becomes too obsessed with these works as "modern music masterpieces", it's rather misleading, as the merit of such works is so drastically different from the merit of the works of Beethoven, Brahms, etc. I think we need to expand our language for describing these more philosophical and less aesthetic works, rather just calling everything we study in school "great art".