Well, I suppose it depends on the circumstance. I know that Jeremy Soule does all the work at DirectSong on his own, which includes, obviously, composing, editing, encoding, graphics, etc., so it takes a lot of time. Since he has the rights to the music, it's likely he gets paid less for the scoring the project as well. If not, it's likely the publisher takes a chunk of the profits.
I listen to most of my music on my computer, so I don't see digital distribution as such a bad thing. It'd be better if it was cheaper, yeah, but there are a lot of costs associated with digital music too. iTunes like takes a cut of every sale, I'm sure. I mean, I prefer a physical object too. You can't really collect MP3s or have your MP3s signed or anything like that. I wish there were CD releases too. However, it's better than not having the music at all. Also, MP3s take up less space and are better on the environment.
Also, the rest of the world doesn't necessarily think like us. Many would say we're pretty materialistic. In Korea, for example, everything is digital in gaming, from music to games themselvse. In fact, I can't even get ahold of Korean game soundtracks in most cases because people there wouldn't buy the physical product, there's no market for it. Not to say there aren't gamers who want the music, but it's all digital.