I think in order for big desktops (and this includes SFF boxes capable of taking a video card) to be the next growth sector we would need to have more competition in the metric consumers want the most and that is cpu performance value.
Actually, I'm not sure SFF boxes belong in the same segment as your typical Dude You're Getting A Dell desktop. Different form factors involved, different market. SFF is basically following in the footsteps of the iMac Mini (and actually, Shuttle probably deserves credit here too).
That aside, competition in the desktop sector really isn't what has driven desktop sales into doldroms. It's more like this:
1). People started shifting to notebooks/netbooks/tablets/smartphones
2). People started being able to keep their desktop for longer periods of time without needing to upgrade, especially in 2006/2007 and later once Core 2 chips became common.
There are still lots of people out there with Core 2-era desktops running something like Vista or 7 that see no reason to upgrade. There are fewer people flocking to tablets now, but that does not mean they're going to turn around and buy an i3 box with the money they save avoiding consumer tech purchases. AMD can't automagically stimulate sales in this sector by leapfrogging Intel in IPC or raw performance if people just don't want a new beige (or black) box to sit under their desk.
Now AMD does have cat core desktop chips with small 128sp iGPUs, but cpu performance is just not in the same league as Intel's bargain chips (ie, Pentium dual core, etc.). Further worsening this problem is the number of downclocked cat core quads I see making into these "big" desktops.
Regarding the downclocked quad and dual cat core chips (including AM1) , I am not sure why this happens.
OEMs seem to like them. Seriously, they do. They let the OEM check off all kinds of functionality checkboxes, they're cheap, and . . . they're cheap. And, for the most part, they are faster than Grandma's Netburst Celeron that she is replacing so why not? Sadly, there's a fairly long list of older CPUs that these chips do not exceed in performance.
And let's face it, those desktops with E1 and E2 chips inside really aren't classic desktops anyway, they are just AiOs in desktop clothing. It would be better if, say, 5350s were going into these machines, but noooo can't have that. Not that the 5350 is stupendous or anything. It'd just be better than the dual-core Jaguars.
One theory I have is that AMD must stratify and bin its line-up so there is reduced competition amongst its own chips.
However, with the top bin Kaveri A10-7850K not being too competitive there is increased price and bin pressure on the rest of the line-up to reduce overlap and competition. The result is a trickle down effect on the whole desktop line-up (including cat cores) that makes all the pricing and binning less than ideal IMO.
It's probably not anything quite that complicated. AMD has wafers to burn and has opportunities to push cheap CPUs into OEM systems, so this is what they cough up. If AMD stepped up and started trying to stick 5350s or FX-7500s into those machines, the OEMs would balk at the lower margins involved in selling those machines for $400 at Staples.