I agree that it’s generating interest amongst non-nerds, but I don’t see how this can be positive for the core idea of Ethereum: a single blockchain that many apps are run on simultaneously. The effective fees for all users have gone up massively because of a relatively small number of people playing a very simple game. Many other applications are being effectively ddos’ed if they can’t produce enough value per transaction to justify the fees. Cryptokitties had to increase the transaction fee to birth a cat from just under a $1 to $6-7 [1], imagine how much it would cost to run any of the long-promised distributed apps like a car-sharing service.
The market has decided that kitten Giga Pets is more interesting and valuable than Etheriuber, at least for the time being. This possibility was always present, and now it has come to fruition. I don't see the problem.
The scaling limits of today's Ethereum aren't exactly news. There's a lot of work going into improving matters drastically over the next year or two, and some low-hanging fruit that could help in the short term: http://www.trustnodes.com/2017/12/05/protocol-improvements-i...
No, it's not news, but seeing a few thousand virtual cats affect the network and effectively drive transaction costs up 7x in real time really brings it home. It's one thing to have to worry about your competitors gaining traction, and quite a another to have to worry about the modest success of every random toy app that uses the same stack threatening to blow up your cost model.
[1] https://twitter.com/cryptokitties/status/937794977848897536