Quality and popularity are separate attributes (figured I'd put it in a way RPGers would understand). Something can be one of those, can be neither, and can be both at the same time.
You can get a short-term boost in popularity (and thus sales) by putting a sexy, heavy-titted woman on the cover of your game box, but doing so doesn't change the quality of what's inside the box. Nor does it make the cover of your box better. Instead, it gives your box a different kind of appeal.
Likewise, you can increase the appeal of a game by adding lots of gay elf sex, but doing so in no way increases the quality of said game.
But the decline of games wasn't just a decline of quality, it was also a decline of diversity. Look at all the genres of games that used to be made. There's only about a dozen left now, and some of those are on their last legs.
(Though to hear Marketing tell it, there's only two genres these days. FPS - the top-dog bestest genre evaw. And RPG - every other game.)
And take a look closer look at what genres went down - anything requiring even a modicum of intelligence or skill.
Also shouldn't forget that part of the decline was the switch-over to big box stores and massive mall chain stores, both with high rents that drove a move to higher shelf-rental costs for ever-shorter shelf time, mixed with a demand for a steep drop-off in list-price for anything that didn't sell in massive quantities. In that climate, small companies couldn't afford to get their games in stores on their own, so they signed up with huge marketing companies in order just to pay for shelf space for a reasonable amount of time. Which was, of course, a deal with the devil.