The real reason James Frey and J.T. Leroy are depressing is that they show us once again that we're unimaginative people who won't buy a made-up story. It has to be real, just as it happened, and authentic because it was written by the person who was there! And even if the writing itself is fiction, it has to be written by someone who is real! Not one of those writers who sits in a room writing, but a soldier or a movie star or someone who was brutally abused as a child, and will talk about it on TV.
If Frey had written a novel about an alcoholic criminal fuckup and his journey through life, or if that couple in SF had presented J.T. Leroy as a fictional protagonist, they might have got a $20,000 advance and no royalties if they were very, very lucky.
Imagination is left to the kids, who get to enjoy Harry Potter having made-up adventures in a much more interesting world. Long live J.K. Rowling!