There will always be people who will pirate no matter what. You can't do anything about that, and they will never be your customers. And for games, the percentage of the audience is probably higher than elsewhere because it is a mostly young and tech-savvy audience.
But the explosion of indie and smaller games on Steam should be evidence that their platform works, and that it makes economic sense to distribute digitally in that fashion because there are tons of us who want it, even with the ongoing piracy (that has been around since floppy disks and will never go away).
My Steam library has over 100 titles in it. I mostly buy during sales and via Humble Bundles mostly, but I also occasionally buy full-priced launch games that I really want to play. I can't remember the last time I bought a boxed game for PC.. Probably 2006? And before Steam I bought maybe 4-5 games per year? The service absolutely works.
One last thing: games piracy also has the added layer of protection cracking, which is pretty much a social contest in itself that incentivizes the activity (and leads to distribution as a measure of recognition etc).
I'd play a pirated version of a game before using the Steam version. Steam implements DRM and is generally obnoxious, trying to force itself all over games (popups), showing sdverts, etc. It just shows how terrible things are in game-buying-land. Look at the Xbox 360. A marketplace UI so laggy, you wonder how they technically able to make it that slow.
I'm surprised. Steam has been quite successful because for most people the intrusion is acceptable, the portability/redownloadability useful, the social side works acceptably, and they regularly offer big discounts.
It never ceases to amaze me how slow the steam store browser is, though.
I'm not doubting that service can be a cause. But I think it's crazy to pretend getting something for nothing isn't a good motivation.