I think in America "cute" has been associated with little girls and the majority of video game consumers have been male, so I see why companies with $ at stake have steered clear of "cute" in the past.

As far as cute character deisgn go, I feel that the art should compliment the game theme/ game play. A great example of "cute" is DD's and Squize's "Crazy Balls". I couldn't imagine the game with any other graphics.

I don't play games much (I just hooked up my Sega Genesis for some Street Fighter 2)but as long as the game is fun or atleast looks fun from screenshots, I'll give it a go, "cute" or not.

I think "cute" games are healthier than the uber realistic killing games, just my opinion.