Video games aren't sexist for having attractive female characters. No one is saying you need to have a competent, UNattractive female character for a game to be not sexist. I'm not even complaining about video games catering to fantasies of male gamers.
The problem is something else.
Problem #1: imbalance. There aren't nearly enough characters, male or female, designed to cater to females. THAT's why there aren't as many female gamers. Archaon hit the nail on the head. Hollywood has chick flicks. How many chick flicky video games have you seen?
Someone brought up Twilight as an example, and even though I personally don't like that series, it's a GREAT example of an entire series shamelessly catering to females. I don't see a lot of video games devoted to catering to the fantasies of the female audience. I do see a whole lot devoted to catering to male fantasies, though.
This imbalance is definitely less severe with Japanese games, as they provide obligatory Pretty Boys With Psychological Baggage. Even a franchise like Dead or Alive has Ein (who failed to garner popularity, presumably because anyone who would have found him attractive were driven away by the boobs before he was even introduced to the series). Instead of de-sexualizing female characters, they sexualize males. That's fine, but I would like to see this done in a more believable, less cliche ways.
Problem #2, and the more insidious of the two: people fail to recognize this imbalance.