I think there's a place in cricket for every format (whether it be Test, 50 ODI or Twenty20 cricket) as each brings their own level of excitement, each brings a different aspect for the audience to enjoy & the shorter formats have introduced more fans to cricket, especially to T20 as it has such an exciting element to it. Plus it's a format where people can invest a short amount of their busy day to (unlike Test cricket for example).
Also in the shorter formats cricketers themselves can diversify their skill sets & evolve as players by introducing new shots to their game, & in turn bring what they've learned to other formats (for example; Bopara recently said that what he learned in the IPL has had a positive effect on his Test game). What’s more, because cricketers make more of a name for themselves in the Tests arena Test cricketers can be integral to the shorter formats. They bring in the large audiences & have a wider fan following & therefore go for the most money in the IPL.
Not only that but the revenue brought to the game from the shorter formats (in terms of advertising, sold TV rights & ticket sales etc) is important to ensuring that other forms of the game can survive. It also provides much needed cash to the overall infrastructure of cricket at a much lower level.
& let's not forget that the shorter formats are (partly) designed to get other nations involved that might have no previous interest in cricket (at least not in the same way that England, India, Australia et al have), the participation of more nations in the game is only a good thing (it brings more people playing, more audiences and more money). Take T20, it's perfect for American audiences as it's high scoring, short, fun, exciting, doesn't require much attention & is over in a few hours. Just what they like (of course whether T20 is actually taken to America remains to be seem but my point remains).
The problem with limited overs cricket lies in the fact that the people in charge have latched on to one particular format (T20) & are now over saturating the game with it. There's far too much of it (though I suppose you could make a, more than reasonable, argument that there is far too much of all cricket & it needs to be reduced to keep audiences interested), far too many T20 competitions & far too much emphasis placed on the importance of it.
& that’s not just T20, there’s far too many useless ODI games & competitions too. I mean do we really need a World Cup & a Champions Trophy? Surely they negate each other anyway (how do you decide a single world champion if there are two competitions to do it. Duh!).
Anyway, because of that over saturation people are becoming bored of it. It’s not just Test cricket which has diminishing audience figures, you only have to look at the stadiums being used in the IPL to know that there aren’t that many people going to see the games (& when there are large audiences it’s usually only because the organisers have given away tickets or reduced the price of them significantly).
I also think that the limited overs format is having a detrimental effect on cricketers themselves. They’ve become enamoured with the money available in limited overs & have started preserving their bankability there (forgetting where they made their names in the first place) rather than protecting their reputation in Tests. They’ve also started to specialise by retiring from Test cricket (Styris has, Oram has talked about doing it & Gayle has denigrated Test cricket recently). It’s harming Test cricket if players are being negative about it (of course, no one is denying that they have the right to earn as much money as they want to, but they could be less vulgar about it!).
Lastly, there’s absolutely no balance between limited overs cricket & Test cricket & there needs to be. It’s a simple fact that, due to the limited overs phenomenon, the boards have gotten greedy & hungry for more money (as have the players). They’re blinded by it & instead of ensuring that other forms of cricket can survive in the long term they’re harming it by putting all of their emphasis elsewhere.
In essence all the formats need to coexist together & learn to live with each other. But that’s not going to happen if the emphasis is on making as much money as possible in the limited overs game with far too many tournaments.
So there you are, there are several elements to limited overs cricket that help the game but there are also several things that make it an abomination.
Lol I had only intended on writing a one word answer. Oh well!