I may be pushing my luck as a newbie here arguing with the big boss man, but as a fellow programmer I hope you'll cut me some slack, and understand this is all made in good taste.
"Seriously, the graphics and animation in GH3 are horrendous and I can't play it."
Since when are you looking at the graphics in GH? And even so, it's a music game, why does it matter so much that you can't play,
simply because the graphics are in your opinion, horrendous (I don't think they're that bad, really. Not as good as Rock Band, but not band. And you are playing on a current console, right? PS2 Graphics are slimmed down to bare minimum). Games aren't animated films, their's a lot more to them. I'd rather have a game that plays amazing, is intriging, and I'd even prefer great sound over great graphics. I can't come up with a good example of a game that has great graphics but is bloody potato right now, which kind of makes my argument a bit limp, but I'm sure every gamer can. The point being, the graphics in GH3 are playable. They don't lag, they don't bug out. Following you're logic, the smash bros games would be suffering because of their graphics, but they're not pushin advanced 3D graphic at all, and one of the few games that are actually still just 2D in a 3D setting.
And as to the '80s trash, two things: out of 48 songs in the main setlist, only 21 are pre '90s, and some of them are extremely fun to play, and pretty good songs. Some of the best songs are also from >'05, like Knights of Cydonia. The game is a Rock guitar game, and rock and guitar were biggest back in the day. Things have changed at lot, you don't hear sounds like some of those oldies anymore and they're great to play to. I don't have any of them on my playlist, but I don't cringe at hearing them, and I don't play GH3 to play music I like, but that's the same thing for Rock Band (by the way, which has 22 out of 45 songs pre '80s). If they had a My Chemical Romance song, I would dread playing it, but I still likely would.
Anyways, the point is, I'm not trying to make you look the fool (or commit social suicide, or offend you in any way), but just trying to bring some points up. And as to my view on the original topic, I don't think Guitar Hero should go the Rock Band way in instruments. Guitar Hero is more about shredding crazy licks and solos, and Rock Band is more of the party game. I think Guitar Hero should be a one instrument game. I have heard of spinoffs within the franchise like Guitar Villian and Drum Hero & Villian. Now that sounds like a better idea. But of course, GH4 needs to have some changes. Changing the graphics would be a start (because I do prefer Rock Band's too), and adding the ability for custom avatars. There's a lot of things, but Red Octane can't follow Harmonix's footsteps. Harmonix is always going to be ahead. They did, after all, make the first two GH's. In order to compete, they have to offer completely different things than Rock Band and doing a whole band setup isn't likely to acomplish that.