I never played console games, but I was a nut for computer games. Starcraft, Diablo, Warcraft, Counterstrike, all sorts of stuff, from a really young age, like 7.
When I was younger (the 7-12 age I suppose) my parents definitely put limits on my gaming time. Half an hour a day, an hour a day, stuff like that.
As I got older, they relaxed it a bit, because I was still getting straight A's, and I'm definitely a sports nut as well. Did sports my whole life. Also, I wasn't playing the games alone, I was playing them with friends. So I guess the concern that I would be an introvert who was unathletic and just sat on his butt all day playing video games was certainly not going to happen, so they relaxed a bit.
One problem is that video games are uninterruptable. You're playing a game like WoW or whatever, and you can't just get off without your character dying. You play a competetive multiplayer game, and you'll lose. That was a big problem when I was younger, like 13. My dad would ask me to do a chore right then, and I would be really ticked off because I would have to quit the game, and I didn't understand why I couldn't just do it as soon as I was done.
I guess my point is this--I think video games are fine, and fun. I had a lot of good times playing them with my friends. I actually get really nostalgic about it sometimes. But, and this is the key, all things in moderation, all things in moderation, all things in moderation.
Too much is definitely a bad thing. Video games can give people nasty personalities. Some of the only times I've ever been truly ashamed of my behavior have been when I was on the computer, absorbed into what I was playing and ignoring what was going on around me, not doing chores, etc. Likewise, I get disgusted with other people's personalities when they play video games, because they're so focused, and it's just a freakin VIDEO game!
Make sure that your kid can still enjoy a good game of soccer or whatever outside. That's important. When video games replace real games.. That's bad. That's very bad. NOTHING can replace a good game of 3-on-3 football in the back yard, or some soccer, throwing the frisbee, having a snowball fight. Nothing.
Likewise, don't let it mess up their academics, either, of course.