Let's get one thing straight. Luigi is far from the incompetent bumper pack of clumsy he's been portrayed as recently. In fact he's one of the most sharp and on-the-ball people in the Mushroom Kingdom. Things have changed a lot since he and his brother first set out to rescue Peach. Back in the good old days they were a team, going up against it all together and soundly kicking the collective arses of Bowser's finest as brothers. Oh those days. Those glorious, halcyon days. They could do anything back then, and the whole world was one big playground for them to share in victory.
Now however, he just sees Mario as a bit of a tit.
You see Luigi cottoned on to the situation far more swiftly than his brother did. For SMB1 and The Lost Levels he was in it just as deeply as Mario was (Though he did wonder about Peach after she sent them back to the start to rescue her all over again after they clocked World 8-4), but after spending some quality time with the princess in the US version of Super Mario Bros. 2 the cracks in her personality really began to show. When she got herself kidnapped again for SMB3 as a direct reaction to Mario's rescue of Daisy in SML, Luigi saw right through it, and by Super Mario World he was, to use a technical term, sick of the ho's bullshit.
He knew that holiday for the three of them was a mistake. She wanted to go to Dinosaur Land? Yeah, nice one Peach, no potential danger there. Of course he didn't see the kidnap coming before they even got on the plane. No siree. But seeing how far Mario had been sucked in by that point he went along for the ride, probably hoping he could use the shared time on the inevitable mission to make his brother see sense. No such luck. Maybe it was her increased resolution or the way she flashed her expanded colour pallete at him, but whichever cheap trick Peach used to keep Mario interested, it worked, and he remained as devoted as ever. Shortly afterwards, Luigi reluctantly gave up and left Mario to it. He'd tried for years, but now Peach was hijacking his life as well as that of his sibling. Luigi walked away, and that's why he hasn't been playable in a core Mario game since Super Mario 64. He knows what she's up to and he just won't play up to it any more.
Yeah, he popped up in New Super Mario Bros., but only to quickly snatch a little quality time with his much-missed sibling in multiplayer while he wasn't being distracted by Peach. He still had a run around the main game, but he made sure to only turn up for that after the whole farcical quest was over so as to avoid getting pulled into it. And it was the same with Super Mario Galaxy. He even went as far as pretending to get lost and captured a few times to put people off asking him to help.
Luigi has perhaps lost more than anyone as a result of Peach's whorish ego-trip. We feel for the guy and we hope he's managing to move on.