I mostly think it happened for a number of reasons.
1) Dial up
2) Sims 2 has come out. Had better graphics, more options, just no online play.
3) TSO had a good chunk where it got literally no updates minus the yearly holiday ones.
4) By the end of TSO/EA-land sims 3 was already announced and people knew it was coming.
5) When EA-land was announed and all they added was ATM's (spend real money for sim money), and the ability to add custom objects after they got approved. Then stopped all updates again. Doom was abound!
6) Game needed to stay competitive with sims 2/3 a whole graphics update. Which we all knew was not coming.
But mostly pick you poison any number of those 6 lead to its down fall. Had it gotten more updates in EA-land to keep interest and bring in new people. Maybe it would of stayed. Had it gotten massive graphic update and look like sims 3. Maybe that would of worked as a "co-launch" along with Sim 3. Had better marketing. Regular updates to keep the "regulars" around longer instead of a good 4 or 5 year drought basically. Might have worked to. Who knows. Maybe it was doomed from the start when it had mixed reviews, and mostly bad press.