I didn't used to think so. The idea that in-wall speakers were well in a wall thus no space behind them - made them physically inferior.
With the pressure on making AV and home theater systems to be phsycially stealth - many companies have made MAJOR strides in making in wall speakers really good. I use the top of the line PSB speakers which I first heard at the Hard Rock Hotel in Vegas during a CES show about a year and a half ago. They have a full enclosure and some slight EQ options which help you fine tune them to the room. I have them paired with PSB in-wall subs and the system sounds good. The front end is a Crestron keypad running my multi-zone ReQuest F-series music server. Honestly, I spend more time listening to that system than my big system with Levinson, Meridian and Wilson because I can play my classical guitar or loungy-chill playlists when I get home from work and just decompress. Its not audiophile "head in a vice" type listening but it gets the job done.
I have also heard in-walls from Revel, Paradgim and Niles that sound really good. I got a demo of some VERY affordable in-walls at the Boston Acoustics press event last week that were pretty impressive too.
Andrew's Meridian in-walls sound INCREDIBLE!!!!!
In the end - in-walls can be better than you might expect.