Personally, I think it's hard to gauge where Square Enix lost their touch.
I think they still make some decent games, I enjoy Final Fantasy: The Four Heroes of Light which just came out in like September. Of course it didn't get the best reviews, but it had some small success.
Of course, I felt pretty disappointed by FF13. I knew before I bought the game it wasn't going to be that impressive, and I wasn't excited at all leading up to its release. I felt the same way about FF12, I really didn't care if I played it or not, and didn't even pick that game up. But, I don't want to say those games were total bombs - they are better than a lot of mediocre RPGs, but perhaps just not good by Square Enix standards.
Some people felt that Square went downhill when they merged with Enix. I reject this idea though, because Enix brought a lot of great games to the table in the merger, most notably Dragon Quest 8(which got good reviews) and Drakengard (which didn't do so well but I loved) and lest not forget that Final Fantasy 12 and Kingdom Hearts 2 came out after the merger, and both of those did well, even if I didn't care about FF12.
For me, I think Final Fantasy 10 was the last great FF game, the last one that really impressed me. The characters were likeable, the story was good, and even if the game traded in difficulty and complexity for a speedy battle system and voice acting, it was a good game. Some people would be quick to criticize FF11, but even that game did pretty well and was the most successful Japanese MMO for years on end.
So, it's really a matter of preference where you feel that SE started to 'tarnish' their reputation for making great RPGs. Some people even feel that they haven't yet.
But the most realistic answer, and probably the one that is the hardest to swallow for most of us FF fans, is that SE is moving into a different direction with their games and has been for years. They are no longer a strictly 'RPG company', they are broadening their horizons and doing new and different things. So maybe, in the long run, this will lead to some new and interesting advancements in other game genres.
end long post.
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