It never stops. Does it? It never stops, but it does seem to accelerate.
When I fuddled with my first 7400 series logic chip a bazzilion years ago, it was a 0.1" pitch DIP chip. A few years after that, people were buying Macs with 0.1" pitch DIP 68000 processor chips. ten years after that, the new little PIC microcontrollers were largely 0.1" pitch DIP chips, but SOIC and .65mm pitch QFP packages were becoming more and more popular. Then came the 1mm and .8 and .65mm pitch BGAs. 0.5mm pitch BGAs became popular a few years ago as did the 0.5mm pitch QFNs. Last year, we started building the 0.4mm pitch BGA Ti OMAP processor with a 0.5mm pitch memory BGA on top of it in a package on package form factor.
If you spend any time reading about advanced packaging, you know that 0.3mm pitch CSP chips are near. I haven't heard of any passive form factor smaller than the 01005, but I guess that's where embedded passives will likely take hold. It makes my head swim sometimes.