Who cares about games. That's really not the most important feature. Just for kids. I can play 95% of all games anyway. As long as important apps work, all good.
While I don't know whether it is fair or not, it makes sense. You have paid less for your device, and are obviously not going to get everything. They are not outright cutting functionality arbitrarily. Games are heavy and can need a lot of breathing room to run smoothly. Nearly everything else on the phone works fine. Its just that many high end games need more room to play with than 512 MB devices can easily provide.
If its any consolation, the 525 is an upgraded 520 with 1 GB of RAM. Meaning the days of 512'ers are more numbered than we think. They won't be left in the dust though. That would be a PR disaster and MS knows that.