Its kinda true. In 2003 gyros were a bit larger, they were just starting to come out for R/C helicopters. And while an Arduino is a great chip its equivalent in something like a 68HC11 or other more "general purpose" microprocessor was larger in both surface area and design footprint (usually a separate eprom + CPU vs built in) the the performance was equivalent.
The real killer has been rapid update rate inertial measurement units (IMUs) which refresh rapidly enough to make interesting feedback loops practical. Small and fast IMUs have arisen out of the the development of MEMS (or Micro Electro Mechanical Systems). Integrating the accelerometer and signal conditioning is the thing that really kicked things off. Putting them into phones got the volumes to the point where they are very inexpensive.
The real killer has been rapid update rate inertial measurement units (IMUs) which refresh rapidly enough to make interesting feedback loops practical. Small and fast IMUs have arisen out of the the development of MEMS (or Micro Electro Mechanical Systems). Integrating the accelerometer and signal conditioning is the thing that really kicked things off. Putting them into phones got the volumes to the point where they are very inexpensive.