The answer, of course, depends on whether you interpret the question to be enquiring or rhetorical. More to the point, it depends on what you mean by awesome, and here we run into a spot of semantic sludge. Speaking to a friend on the phone last night, I used the word and found myself appending a parenthetical clarification: that I meant awe-inspiring. Because to many people in many contexts — especially young people in any context — the word awesome means pretty good, great, cool, excellent, fine, exciting, quite interesting, not terrible, etc. It is often preceded by totally, or followed by dude, or both; and new variations arise constantly.
My hiccups have stopped. That is so awesome!!1!
Is that a new pencil? It’s awesome, dude.
There’s, like, a free David Hasselhoff toaster with every new kitchen. That’s, like, totally awesome. It is teh awesomest.
This sense of awesome dates to 1961 and became popular a couple of decades later (more on that below). The original meaning of awesome, dating to around 1600, is “filled with awe, profoundly reverential”; by the end of that century it had come to mean “awe-inspiring”. The root word awe, meaning terror, dread, or wonder, is much older. There are situations where awesome is still implicitly and normally understood in this earlier sense, such as when used in religious commentary, or deployed by, say, a physicist when describing the power of the sun. But the weakened sense of the word has crowded the field.
The first time I remember using awesome was on a day in the bog in my early teens. We (assorted family members) were loading a truck with bags full of turf that was finally dry and ready to store. Helping us were two men I didn’t know, brothers in their late thirties or so. I was hefting bags from one pile to another nearer the truck, and from this vantage the men seemed immensely strong, even when I allowed for the physical disparity between the average adult and my non-Hulk-like teenaged self. One brother stood in the back of the truck while the other tossed bags of turf up to him with one hand — almost flicking them, as if they were no heavier than juggling bags. I turned to my father and said, “That’s awesome.” He laughed and agreed.
Occasionally I use awesome in its weakened, broad sense, and I see and hear this usage everywhere. Some people use it with irresistible enthusiasm. I would guess that its ubiquity has almost attained a level of colloquial penetration that cool did before it; at the risk of sounding facetious, its current popularity is awesome. Our generation is either in a state of near-perpetual awe, or in a state of a complete lack of awe. What’s more probable, and less tongue-in-cheek, is that the word’s meaning has simply devalued. And I mean no value judgement. It is arguably as pointless to bemoan a shift in lexical meaning as it is to gripe at the rising tide for turning your sandcastle into an amorphous lump.
A few examples, selected more or less at random from the British National Corpus, shows a wide range of usage, with landscapes, battles, sporting feats, and natural forces and sights appearing often:
Understanding of the atomic nucleus was progressing rapidly and awareness was dawning of the awesome energies latent within.
You’re an awesome dancer.
The SNES version of Star Wars looks being one of the most awesome treats of ’93.
Certainly, multimedia systems can perform spectacular, even awesome feats.
[T]he famous charge of the Frankish knights with levelled lances was still an awesome and terrible thing to the lightly-armed Saracens
His batting could be awesome in its power.
High Elf mages are mighty spell casters whose fiery blasts and awesome energies have won many a battle.
The Urban Dictionary has, at the time of writing, 73 user-written definitions of awesome, the vast majority of which attribute to it the same generically positive meaning as cool, with an optional added oomph of awesomeness. Roughly seven entries include the sense of awe or allude to the traditional definition. The Urban Dictionary is a contemporary slang dictionary, so this ratio is unsurprising. Some of the entries are quite imaginative; others seem decidedly weary.
Film critic Roger Ebert tells us that the American teen comedy Fast Times at Ridgemont High (1982) features Sean Penn immortalising the word awesome. I have not seen this film; for me it was Bill and Ted who popularised the slang usage. I don’t know when this happened relative to my awesome day in the bog, so I can’t say how established the word’s different connotations were at the time, but I have always been aware of using it in two distinct ways. These spheres of meaning overlap but are usefully distinguished — at least if we want to preserve the traditional meaning. (The Oxford English Dictionary includes a third meaning of awesome, from the late-sixteenth century: “filled with awe”, which discovery almost prompted me to title the post “I am awesome”, until I thought better of it.)
In the Columbia Guide to Standard American Usage, Kenneth G. Wilson writes that in the 1980s the word was “suddenly taken up as a hyperbolic adjective to describe anything better than average”. This seems a fair assessment. Wilson adds that awesome and awesomely “will no doubt one day be perfectly useful words again, but just now  they are shopworn and weary”. A few years later, Bryan Garner wrote of awesome that “[f]or the time being, the word has been spoiled by overuse”. But these judgements should not dissuade you from using it as you see fit. Robert Burchfield, in his third edition of Fowler’s Modern English Usage, reports that “[t]he traditional reverential use is far from extinct […] in the US, though it is more at risk there than in Britain.”
Awful is a related term, and its history is equally interesting and even more changeable, but this blog post is already long enough. I wrote a little about it here, if you’re curious. And if you’d like to share your thoughts below, that would be awesome.