The Malaysian military reported a radar signal that was likely the flight over the Straight of Malacca (west coast) rather than the Bay of Thailand which everyone has been focusing on.
I have a pet theory and it does well explain all the events. This theory is based on the fact that Thailand and Malaysian relations have been sour as of late.
So here's the facts, at least as I understand it.
1. Radar contact of the flight was lost over the Bay of Thailand and appeared to be turning (~750km NNE of Kuala Lumpur).
2. Radar contact was allegedly gained over the Straight of Malacca (~350km NW of Kuala Lumpur).
3. The flight made no radio contact.
4. The flight had its IFF transponder turned off.
The Malaysian/Thailand relations and the "resighting" of the flight over the Straight of Malacca is what will make the rest fall into place. If the plane suffered decompression it would have had to descend to roughly 10,000ft and would have fallen off of radar (1). The apparently turning of the flight path indicates that the flight may have been attempting to return to Kuala Lumpur, however the best way would have likely be to turn to port, fly over Thailand, reach the Straight of Malacca, and fly into Kuala Lumpur (that's conjecture). Turning off the transponder and undergoing radio silence would make it very difficult for Thailand to know this plane from Malaysia was violating their airspace. Thus attempting to avoid further souring of relations between the two countries. Radio contact and the transponder might have been reenabled when they got closer to Kuala Lumpur. However the plane may have been forced to land in the straight before then, possibly in one piece, and had sunk in the Straight.