When will there be decent classical music recordings?

"mic every instrument individually, and then have the conductor work with audio engineers to bring the piece back to life."

it's not a nightmare, it can be done. the best solution is to store the individual instrument recordings as master. Then have the different recording engineers /studios to "mix" the different instruments recordings according to their "taste" then market under their on labels . Since each audiophile have their different perception on the correctness & presentation of complex works, i guess this way we could have higher chance of getting the music style we each prefers. 

-philip

No matter how good and big the room is, it will not make a average recording come alive. I believe the COST of making records sound great from big scale works or orchestra are the primary contraint. The venue from where the music are recorded plays a key factor here. Many were recorded in large studio instead of stage hall. The equipments used in recording directly from a hall cost a lot more and the manpower involved multiplies. Experienced recording engineers aren't cheap too.
As mentioned earlier,  many records sound compressed or smeared perhaps due to poor recording environment and modest equipments used in the first place. There's a limit on how much a mixing engineer can do to replicate that event if the original master tape are poorly done. 
I've heard great records done by Japanese labels, their CDs don't come cheap even today. Try YouTube for Joe Hisaishi, he's the top composer, conductor and pianist himself. His productions on CDs and DVDs are always great. From the beginning to the end of making a CD, it takes a lot of effort,  time and money for an orchestra to sound good.