Because there is still a market for those that want to play western RPGs.
As for people liking western RPGs, both KOTOR and Morrowind were insanely popular games on the console.
As for rising costs, look at the work that Will Wright is doing with Spore. The procedural design of the game creates art algorithmically. It severely reduces the size, and eliminates the need for 200 artists working on a game. It will mean bad things for artists in the game industry, but it will be a wrecking ball to the soaring costs.