I think the flaw with your logic is that your not considering the "Generation X" factor and the fact that we skipped a generation. "Baby Boomers" are on their way out, but still account for most of the money and power in society and they never embraced video gaming. However the current generation, and "Generation Y" which is upcoming have. How many people are gamers and would know what your talking about with "Grand Theft Auto IV" depends on the audience. If your a Gen Xer and attending a business related party with your bosses who are likely to be Boomers, and your right only a couple of them are likely to get it (though a couple will, which is pretty outstanding since it has penetrated a little). In comparison if a Gen Xer is hanging out with people of his own generation (who can now be in their 30s like me) the odds are much, much greater.
See, before I retired on disabillity I talked to a LOT of people I worked with about video games who were around my own age. The stereotype that video games are inappropriate for "water cooler conversation" is entirely false. I have actually had conversations of the sort people joke about (murdering people in crime games, slicing up demons, etc...) with groups of co-workers at various (appropriate) times, as have a lot of people I talk to when they discuss their own experiences at their job or whatever.
One thing to consider is that the penetration of gaming can't just be measured by it's sales. While the gaming industry is concerned mostly due to greed, look at the used game industry and the number of people who buy games used. Also look at various back door methods of running games like emulators which a lot of people use, not to mention pirated Chinese hardware (just because your PS-3 says "Sony" on it doesn't mean it's a real PS-3 for example, if you got a super deal on it online, it might be a knock off, this is true of a lot of consoles and handhelds in general).
Some of the attitudes of the industry are hard to justify since they involve punishing legitimate users, and involved bad assumptions like every pirate or used game buyer purchusing the genuine article or for full price if those avenues were not open to them. The point being that the group of gamers out there is easily two, three, or even four times the size of the statistics. This is one of the reasons why the industry has such a greedgasm in trying to find ways of tapping into those people and forcing them to pay despite massive pirates.
Indeed even before consoles were as big a deal as they are now, the industry realized things were getting big enough where "water cooler piracy" was becoming a big part of their problem. People copying and burning games at work, exchanging pirate sites, or giving referances to discount electronics shopes that have these "unbelievable deals on consoles".
Of course I think the situation is complicated because of the Boomers who still represent a portion of the "Mainstream" far more than they should be doing so sociologically. The "current" generation and the upcoming one are arguably very much generations of gamers.