I wouldn't write off the Spanish yet. Barcelona could've beaten Chelsea. Real went out to a defensive mistake with three minutes of extra time left. On another night, both would have gone through, and Chelsea and Juve would be gone. Three years ago everyone was writing the obituaries of Serie A, but look at them now. Milan won the competition two years ago, while themselves and Juventus are in the quarter finals this year, with Inter possibly joining them this week. Liverpool did very well against Bayer Leverkusen, but does anyone really think they would've beaten Real Madrid or Barcelona had the draw turned out that way? As players move around, the strengths of the challengers from various countries are going to ebb and flow. Right now, Chelsea can buy anyone they want and have a superb manager to mould their team. Real, despite all the galacticos, have a bit of rebuilding to do. They've never replaced Makele for instance, while Raul has hardly been setting the world alight this season. However, they could easily come back and win the competition next year with the addition of one or two players.
Real may fix a problem or two if they would start Owen.
I agree with your assessment. In any given year the top 16 teams in the Champions League are fairly evenly matched. Each game could go either way.
I think I made my posting as a reaction to all the claims of La Liga's superiority over Serie A. I do not buy it. I think these two leagues, along with the EPL and the Bundesliga, are all at the same level.