I'm an 80's baby too, and from my point of view, what happened to games is that they largely grew up with me.
Games like Mass Effect, Assasin's Creed, GTA ect, feature a good amount of sex and violence... about the same things you'd see in most R-rated movies. The majority of big budget games you see nowadays are made for adult gamers, ages 18-35.
The majority of TV, movies, music and books are made with adults in mind too... video games have just matured to the point where it targets the same demographics, not just kids any more.
Like Volitans says, it's really up to parents to be responsible and not give inappropriate games to their young children. Would you let your 12-year-old watch Saving Private Ryan? Probably not, so why would you let them boot up Call of Duty?
There are still good, simple games out there for kids. In fact, thanks to digital republishing, you can get value packs of old 8-bit games for very cheap.
If you're looking for great games that are kid appropriate, here's a few for a start: Skylanders (be prepared to shell out a lot of cash for this!); whatever the latest Pokemon game is; the new Star Wars Kinect game; the whole Lego line of video games; Castle Crashers.