Shrinking hard drives is getting difficult, and approaching some physical limits (as in, the laws of physics,) but Seagate's "perpendicular recording" tech let them squeeze more out of it. It's probably more a matter of marketability... the big OEMs (Dell, Gateway, etc) and their average joe customers have no use for high storage capacity right now. Only enthusiasts know how to fill a TB hard drive, and it takes a concentrated effort to do so.
At the moment, the technology has outpaced users' ability to utilize it. You could say supply is higher than demand. When The Next Big Thing comes along, there will be a market for the next technology. Right now, the biggest sellers are still 40-80GB drives for Playstations and Xboxes, and computer OEMs offer the 160-320 range - and only that high simply because the drives are so cheap to manufacture now.
edit: mmm, grammar