What happened was they tried to go online more, and Uru happened.
Wonderful graphics and levels, with online bits and pieces (I don't know if it was really multiplayer, but there was some social component to it). But all this before most internet connections were capable of dealing with it (5 minute load times for zoning between sections was a really serious deal breaker).
It died, hard, and I think that took the wind out of their sails for a bit. Not sure they ever recovered much after that.
(I was in the early beta and stuck with it pretty much through that, and it was never ready for prime time at all. Last I checked I was still listed in the credits, I'll have to check that again some time).