Valkyria Chronicles I + II as well as Lost Odyssey were all highly critically acclaimed and I can personally vouch for VC1 as as highly innovating the SRPG subgenre.

I don't know if I would say Demon's Souls is western. It's definitely vanilla high fantasy, which is what many western devs stick to, so I could see it on the aesthetic level, although it's still a superficial characterization. Instead, Demon's Souls stood out to me as Japanese as Japanese can get. It reminded me of Ghouls & Ghosts/Goblins/whatever-port-you-played from back in the day, where you start from the beginning, each time memorizing the order the enemies come at you, and taking each one down, in the confines of its own system. It's an action-RPG, but it's not a free-flowing game, the speed and strength of your attacks, as well as dodging, have their own parameters to them and it's very much evident with how it plays out.

Western RPG's this generation have been characterized by one thing: selling out. These games have "streamlined" themselves by forsaking what made them great on computers in the 90's and instead become more like action and shooter games on the 360 now in the 2000's. Older fans of Fallout cried foul on Bethesda's bastardization of the game into a shooter (although a lot of them like New Vegas now better), and Bioware really went hard with making a third person shooter with Mass Effect 2. I remember playing Fallout 3, with its static characters who look like they're standing still, even when they're moving, being bombarded with hundreds of choices and menial tasks to begin, none of which I could possibly care less about.

Personally, the East-West debate in the media has gotten so played out, and I'm so tired of hearing it, it just makes me lose faith in the direction video games as a medium are heading. Every time a self-proclaimed "journalist," or, worse yet, "analyst" claims that Japanese developers need to borrow elements from Western games, I wanna let them know how much they're coming off as the anti-christ, because I don't want Japanese developers making Western games, I'd rather them creating new genres of gaming we've never thought possible, and have the Westerners rip off of it for every penny its worth. Even worse is when they suggest Final Fantasy or such should be more like W(annabe)RPG's.

Because those games aren't fun.