Anybody who buys hardware at more than ROI is taking a MASSIVE gamble that difficulty is going to drop, or at least remain flat... Unfortunately for them, there seems to be no shortage of people willing to take that bet, and so difficulty continues to climb... 
I like your analysis, especially this last part. The core question is, why do people continue to take that bet? What we are seeing here is an iterated form of the Prisoner's Dilemma which encourages players, who are trying to act rationally in their own self interest, not to cooperate with other players and thus we end up in a net destructive situation.
http://en.wikipedia.org/wiki/Prisoner%27s_dilemma
Specifically if we look at a prospective miner's choices, they boil down to:
Don't buy mining equipment - (Cooperate)
Do buy mining equipment - (Defect)
Obviously, if a single miner bought equipment (defected) and the rest of the mining world chose not to (cooperated), that sole miner would win hugely with massive ROI. But since ALL (or a majority of) miners choose to buy equipment (defect), the net result is that in each round of equipment purchases the majority of miners end up suffering a loss (negative ROI). It is then up to miners who lost in that round to choose whether they want to purchase again in the next round, again risking negative ROI.
This game will continue to iterate until the players with negative ROI drop out of the game due to lack of funds or lack of desire to play and only players with positive ROI remain (I'm ignoring hobby miners here).