It did struggle at first, then the network adjusted by raising the gas price. Ethereum has a few upgrades in the plans for the near future, which would scale the network to be able to handle multitudes more transactions. Also, it will become a POS token, not POW. I think that in about a year, Ethereum should be able to handle thousands of killer dApps like cryptokitties without any issues.
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You're right.
I think that higher gas price was a bad idea lol. It nearly killed the game, if it hasn't already. That, and the quick turnarounds for breeding. The system kinda lends itself to the deflation of rare traits prices.
Although, I do wonder if they did that due to predictions of the rise of ETH's value.
I would like to see the ETH network find a way to handle Cryptokitties and still be cheap.