If I was a game developer and came to the realisation that the game I was making sucked ass, I would probably either scrap production and start anew or try to fix what's wrong.
Okay there's generally 3 scenarios if you're a developer:
1. You're an indie developer making an iPhone game without a publisher. You're self-funded, and every day you're open drains more of your life savings. You eat a lot of ramen noodles.
2. You're a bigger developer making bigger-budget console or PC games, and you're funded by a publisher. You have strict milestones set by the publisher which dicate what has to be working on which dates, and they can pull the plug whenever they want. Without the publisher funding you probably couldn't keep your office open more than a few weeks.
3. You're a super-awesome AAA developer that's either a first-party console developer, or you're owned by some huge company, or you've made so much money the rules no longer apply to you and you can do whatever you want (such as Valve, or Blizzard). This could also be certain hugely-successful developers outside of your typical console/PC space, like Rovio or Zynga.
These "crappy games" aren't coming from the guys in the #3 group, so let's forget them. Which means you're either #1 or #2. If you're #1 and you say "okay let's scrap this game and start over", or "let's delay another year and make this better", you go bankrupt and don't have any money to feed your kids. If you're #2 and you tell your publisher "okay this sucks, we're going to start over" they say "okay, nice working with you" and they're gone. So unless you find another publisher to make a deal with you're going to be bankrupt soon, and finding another publisher is really hard when you just scrapped a project and cost some other developer a crapload of money. Publishers will sometimes be okay with delaying a game to make it better, but it's their call and not the developers. The publisher might see the whole thing as a money hole, and say "too bad you have to release this fall no matter what" so that they can attempt to make some sort of return on their investment before they dump all of their money into a game that's in limbo.
If my developer team wasn't up to the challenge of making a big budget game then I wouldn't do one.
Oh so, you just have to be able to see the future to be a good dev? :P
In all seriousness, you don't always have a choice on what you work on. If a developer doesn't have a big reputation then they may have to take whatever they can get from a publisher. And this might be making some video game tie-in to a smurfs movie, which absolutely-come-hell-or-high-water has to ship when the movie hits theaters.
Attempt omething that is achieveable and results in a fun, polished product. What's the point of going through with it and making a terrible game that no one will play? Will that get you get you somewhere in the industry? Why are you wasting your life on this crap?
Obviously people want to make great games and not shovelware, but it's a small industry that's really hard to break into. Sometimes you have to take what you can get, and try to work your way up to making better stuff. Not everyone can work for Naughty Dog, and not everyone would want to either. A lot of people enjoy what they do regardless of how high of review scores they get, or whether someone on the internet thinks they're "wasting their life".
Same goes for movies and any other medium really.
Movies, music, and other entertainment industries have a lot of the same problems as the games industry. A lot of people are desperate to break into it and are passionate about what they do, and a lot of companies actively exploit these people to make lots of money. Also like games they are very hit-driven, and a select few will hit it big while the rest remain in obscurity.
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