The word "embarassed" was AppleInsider's interpretation of John Carmack's words. The specific quote was:
It can obviously be interpreted many ways, but I read it as Apple doesn't want the iPhone to be primarily known as a gaming device that is also a phone and media player. Apple would probably want the iPhone to be known more as the first of a new type of universal, truly mobile computer device that can cohesively integrate computer productivity, entertainment, and communication functionality. As such, having a disproportionally large number of games in the App Store could compromise the broader iPhone vision.
If only it were true that the average App Store game were $5-$10, then there would be more interest in developing iPhone specific titles that are more expansive in scope, more comparable to console games. As it is, the average price of the top 100 games is $2.76 and in general, out of the top 100 games, the number of games priced above $5 is in the single digits. Gameloft and EA have been among the few developers to price their games above $5 while providing the content and quality to justify the higher price. I'm not saying there shouldn't be cheap games, but I'm definitely hoping the App Store community keeps a willingness to support higher price points for bigger budget games that are more likely to push the envelope of the iPhone becoming a legitimate portable gaming console.
I'm particularly interested to see what Rockstar is going to do with Grand Theft Auto Chinatown Wars on the iPhone. It was just released at $40 on the PSP so it's hard to see it being in the single dollar digits for the iPhone. I'm thinking they may release part the game at $10 and the rest as DLC, maybe divided by islands with bridges severed as is traditional in GTA. Certainly, given the detail and gameplay available in even one island of Chinatown Wars, a $10 chunk of Chinatown Wars would compare favorably to existing games on the iPhone. In any case, I'm looking to Rockstar to be able to provide the content and quality to justify higher prices than have traditionally been the case of App Store apps. I'm not looking to pay more for less, but I'm certainly hoping developers would offer more for people willing to pay for it.