What is the main issue of emulation?
I'll tell you what the problem is: there's no payoff for the original game developers, and therefore, it is illegal.
But there should be a payoff.
Imagine this: instead of shelling out upwards of $4 for an NES game on a system that you don't likely have, and that has the selections that only NINTENDO deems acceptable, why don't you just download it? There's really no reason why you should pay XBOX Live $10 for Smash TV when you can put it on your computer for free.
So what to do?
The answer is, those classic games need to be locked down. Here's an example: If Nintendo would sell an "Nintendo" deal -- basically, a Super-Nintendo controller knockoff (they have them at Best Buy for about $10, or if they really want to be nice, a USB-enabled classic controller), and access to the entire NES library for $1-$2 a game, I garauntee they would make some serious cash. For one, you appeal to that guy that's scared of getting busted for stealing ROMs for free. These are the sort of people that stopped stealing music when Napster went under, and have pretty much been waiting for something like this that would be accessible to the guy with only $40 (who doesn't want a Wii).
Also, you appeal to the super-nerd who has a hard on for games like Yo! Noid and Bad News Baseball -- games that are probably never coming to virtual console within our lifetimes. Also, that same nerd probably is going to buy up all the obscure crap he can.
In addition, you appeal to those classic "nostalgia" guys. These are the ones that want to play Super Mario Brothers 3, Metroid, and Mega Man when they want them. They don't want to wait for Nintendo of America to finalize a list of three games every month (and they certainly will space those three out as much as possible to maximize revenue). They want them NOW.
Finally, you appeal to those guys that are trying to play games that they never could -- like me! Imagine how many people would buy a prepiheral that would allow you to play Panzer Dragoon Saga, or Radiant Silvergun without shelling out the billions of dollars for a legit copy of the game? Hell, sign me up!
Maybe it's time that we reinvented the idea of Bleem! for the masses.