I think about this a lot, being a musician, and a big music fan.
I agree with Don that it has a lot to do with attention span of the listeners, and their patience. And that is affected by the insane amount of music available to people nowadays. It's easier to record and release music now, which I love, but it means that there's a lot more music out there. It's also easier to get. Rather than having to go to a record store, kids can just sit at their computer and buy songs off of itunes or bands' websites, or download them for free (legally and illegally), or just listen to the music on myspace or whatever. This makes people, not just kids, less patient with music. Back in the old days, when someone would get an album, they probably didn't have a very large collection of music, and they'd spend time with an album, even if they didn't really love it at first. And I know from experience that even if you don't like something at first, it's very possible it will grow on you.
Another factor is the ability to skip songs on an album. Sure you could do that with cassettes and records, but with CD's and mp3's, it's just the press of a button. When people aren't being patient, they skip a song. I've been listening to music with friends of mine, and they'll skip songs like crazy. They may never even hear all the songs on an album because they never gave them a chance, but they'll hear the singles or hits because they're played everywhere, which makes you give them a chance whether you like them or not. That's why many people know Smells Like Teen Spirit and not about other songs on Nevermind, even if they own the album.
I personally love albums. I love sitting down for anywhere between 30 and 80 minutes just doing nothing but listening to an album, on headphones, listening to all the details of the music. Most people don't really spend time with albums like that anymore, but I love it. There are things I love about it, like the flow of an album, the feeling that the songs all work together as opposed to being separate songs that have nothing to do with each other all thrown together. Many bands are realizing now that making albums isn't really worth it, that they could just release singles. So many bands that I like have announced recently that they probably won't be making any more albums, but instead releasing singles. That way, they can release music more often, and it caters to people's short attention spans. I don't know how I feel about this, because I really love albums.
What I'd like to see start happening though is bands releasing singles, more often, but with "b-sides". That way it would be like a mini album, just 2 to 4 songs or something, with one being the "hit". But it would be like a mini album in that it would all flow nicely. It would cater to short attention spans, and there would still be the hit single, and bands wouldn't be spending so long working on albums. They could release a bunch of these single mini albums in the time it takes to make one full length album. Releasing singles that aren't on any albums is nothing new, it was happening decades ago, but they were usually just slapped with some b-sides that didn't necessarily go with the single. So I would just like to see bands take the best characteristics of singles and mix with with some of the characteristics of albums, creating these mini albums that flow nicely.