Note that this isn't the same as asking whether selling a game for super-cheap is the right strategy. Absolutely no one, Valve included, wants the kind of downward spiral that happened on the iOS app store and has people call $1 games "too expensive". But can you make small, short, well-polished little games and sell them for an appropriately small amount of money?
So far, my working assumption was that the big hurdle is getting people to pay money at all. The inconvenience of the payment process is so that, as long as your game doesn't come across as actively expensive, price doesn't matter that much. A price of $2 instead of $5 isn't going to make the difference when you have to get out your credit card either way.
But Steam may have changed that. People may be so used to buying through Steam that they don't mind. Or maybe they toss in a few cheap games when they're buying an expensive one. Or many of them have a few dollars in their account from trading or refunds, which means that buying a sub-dollar game is pretty much frictionless.
I find this idea pretty exciting, actually. There's a whole bunch of prototypes and ideas for smaller games, like Dawn or Parasite Escape, which I shelved because I felt there was no way to make them into a game big enough to charge $5-10 for. But if $1 is a valid price point, I can take those prototypes, turn them into short but polished experiences, and make a decent amount of money.
This wouldn't be a get-rich-quick strategy. We're talking around $10k for several months of work, which is nice but not mind-blowing. But there's additional reasons why making smaller games may be preferable: you get more varied experience developing, releasing and promoting games. And you get more visibility, more chances to build an audience.
Of course, for the next few months, my path is clear: finish development of Airships. It's ended up quite a big game, and there'll be a lot of work polishing it even after it's feature-complete. But afterwards, I'll need to choose: do I make the next big thing, or do I spend some time making little game gems?