Construction delays have hampered the preparations for the Games, which start on 3 October, and the athletes' village was this week called "uninhabitable".
Coates said: "In hindsight, no, they shouldn't have been awarded the Games."
However, Commonwealth Games Federation president Mike Fennell is heartened by the "considerable improvements" made.
The village had previously been described as "filthy" by CGF chief executive Mike Hooper and photographs, taken in the last few days confirmed that.
But Fennell is encouraged by the work carried out in recent days.
Before a tour of the village on Friday, he said: "The briefing I've received from Mike Hooper was that considerable improvements have been made within the village, with further significant resources deployed by Delhi Chief Minister, Mrs Dikshit, to make good what was a concerning situation.
"I am certainly pleased to arrive in Delhi to the news that Australia has moved into the village ready for the arrival of their athletes, and with the confirmation that England and Wales will be on their way to Delhi shortly.
The Jawaharlal Nehru Stadium
With nine days to the opening ceremony, there is still work to do outside the main venue for the Games - the Jawaharlal Nehru Stadium
India should not have been allowed to host the 2010 Commonwealth Games, according to the Australian Olympic Committee (AOC) president John Coates.
Construction delays have hampered the preparations for the Games, which start on 3 October, and the athletes' village was this week called "uninhabitable".
Coates said: "In hindsight, no, they shouldn't have been awarded the Games."
However, Commonwealth Games Federation president Mike Fennell is heartened by the "considerable improvements" made.
The village had previously been described as "filthy" by CGF chief executive Mike Hooper and photographs, taken in the last few days confirmed that.
But Fennell is encouraged by the work carried out in recent days.
Before a tour of the village on Friday, he said: "The briefing I've received from Mike Hooper was that considerable improvements have been made within the village, with further significant resources deployed by Delhi Chief Minister, Mrs Dikshit, to make good what was a concerning situation.
"I am certainly pleased to arrive in Delhi to the news that Australia has moved into the village ready for the arrival of their athletes, and with the confirmation that England and Wales will be on their way to Delhi shortly.
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"Already so many athletes from around the Commonwealth have started their journey to Delhi.
"Our job across the next week is to help ensure that all the corrective work is completed in good time.
"We must ensure that a suitable environment is provided to ensure the welfare of the athletes and their support staff.
"It is vital that all remedial work that has already started continues with the greatest urgency."
Buoyed by the progress made, New Zealand have announced they will compete at the Games.
New Zealand Olympic Committee president Mike Stanley said that developments over the last 24 hours had been significant but his team would continue to review hygiene and security issues on a daily basis.
"We are confident now that this can be turned around," he said.
"What we found was inexcusable and unacceptable, but we've seen a change in leadership and this is positive."
England's hockey and lawn bowls teams were among the first foreign athletes to arrive in Delhi on Friday.
However, they will stay in hotels over the weekend while further work is carried out on the athletes' village.
Australian Coates was one of the leading members of the organising committee for the Sydney Olympics in 2000, and is also an elected member of the International Olympic Committee's executive board.
He pointed out that part of the problem facing the CGF is that they only have five people overseeing Delhi's progress.
In contrast, the IOC, which is currently monitoring preparations for the 2012 Olympics in London, has 400 staff.
"The CGF is under-resourced," he continued. "It doesn't have the ability to monitor the progress of cities in the way the IOC does."
Coates also said that the IOC has contracts in place with London and 2016 Olympic hosts Rio de Janiero to ensure construction deadlines are met and test events are carried out one year before the Games.
"If that had been the case here [in Delhi], then certainly something would have been done a lot sooner because obviously the venues are not ready," he stated.
"Certainly the Commonwealth Games for its future needs to move away from just the old countries - Canada, New Zealand, Australia and Britain taking turns. But the problem is, they [India] weren't ready."
Delhi is expecting 7,000 athletes and officials to begin arriving on Friday to stay in the village.
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