There's a fascinating conversation on the state of the SF/F novella on the Asimov's discussion board. While Fabrice Doublet bemoans the lack of good novellas nominated for the Hugo Award, editor Rich Horton notes that a number of strong novellas have been published lately. Gardner Dozois says that while there are "never a whole lot of novellas published per year, ... science fiction is one of the few genres in which any are published at all."

Personally, I'm glad that the SF/F genre remains receptive to novellas. As Dozois states, "Sometimes working under restrictions and limitations is actually good for art." I totally agree. There are a great many famous novellas--such as The Old Man and the Sea, to give a "literary" example--which would have been bloated and weak if the story had been fleshed out to novel length.