There is room for interactive fiction. The community of interactive fiction writers didn't grow quite as quick as the community of professional and hobbyist video game developers, but they're among us. You may have heard of Andrew Plotkin and his runaway Kickstarter deal: http://money.cnn.com/2010/11/15/technology/kickstart_plotkin.... If you haven't played his games, do yourself a favor and take a look, there's a javascript interpreter, so you don't even need to download anything: http://eblong.com/zarf/if.html. Dreamhold is the easiest to get into; Shade and Dual Transform are both single-room games, but each provides wonderfully peculiar game mechanics.
If you want go get a perspective on the present state of interactive fiction, http://brasslantern.org/ is a hub of sorts, you can find game files and reviews there. There are annual competitions. If you use iOS, there's a port of Frotz interpreter.
Even the base concept of challenge is not a given in modern gaming with titles like Little Big Planet where creating games is a major focus, or Kinectimals in which atmosphere and light hearted play trump all (actually, that second title could use even less, 'forced' challenge, IMO).
I applaud modern developers for constantly pushing the limits of what it means to 'experience' a game, rather than just play one as we have in the past.
That said, Zork totally rules! I've always thought there was room for Interactive Fiction in the modern world, it's just a matter of how/when (I hope!).