I've never really given this idea much thought, to be honest.
My games are always arranged by system, and often times alphabetically, simply because when I buy a new one I put it in the right place alphabetically.
My collection is much more organized now that I picked up a nice shelving unit. It houses my PS2, GC, and XBox games on three shelves, and my boxed N64, SNES, NES, GB, and GBA games on another three shelves. I like this stand, it works very well. Will upload a pic later today, if I remember.
Then, because I ran out of room, I have sealed tupperware containers that house all of my boxed and unboxed Genesis games. They also house my Sega CD and Saturn games.
Then I've got a myriad of unboxed NES carts, and they find their homes in several NES cart holders, so that they're ready to be played at any time.
Oh, I also have a few CD racks that house all my PS One and Dreamcast games...how could I forget you till last?
And a bit off-topic, I've got a 27 inch Zenith TV tated in my room, next to my computer desk, with a PS2 and computer hooked up to it. On top of that sits a 12" Commodore monitor, and an NES. There are always loose games laying around here. Then, in the living room, I've got the 32" JVC surrounded by consoles and stereo equipment.
Even more off-topic, I used to (FOR SHAME!!) have many "backup" copies kickin' around...these came about from my university days, when I was terribly poor, and had morally-loose friends with CD burners! Since then (a short 2 years), I've replaced a good half of them with legit copies that I've tracked down via local stores or online, thrown out another quarter of them, and have the remaining quarter that sit around while I find real versions of them. As I acquire a real version, I throw out the "backup". I feel so much better these days

The reason I've mentioned this here is that storing these backups, and organizing them, was not much fun. No pretty artwork, no cases, just labelled discs. It drove me crazy, and I found I could never figure out what to play...whereas when I look at "the shelf", it's a lot easier to decide on something. Does that make any sense?
One problem I do find is finding shelf space to accommodate all of the different-sized boxes/cases that games have come in over the years. Genesis cases seem to be the worst, as they don't really fit in with anything else I have - at least most Nintendo games have similarly shaped boxes (NES, SNES, and N64.....and then GB, GBC, GBA, and DS). I somewhat like the DVD case standard that companies use now, it's easier to deal with.