Doesn't surprise me at all. The culture at Wotc has always been rather tumultuous in the upper echelons from what I've read. NOTE: I most certainly wasn't there so take this as reckless rumor if you like, but... Personal relationships that any employee handbook would definitely say, "This is just right out," and despite wild corprorate success nobody was making any money. This sort of tale fits right in with information that I've seen before. It was pretty wild west as WotC came into its own and that has to continue to get passed along as a, "Well, this is just how things have always got done here," kind of corporate memory.
Well, keep this in perspective. The arc of a runaway startup success is pretty well-defined:
1. Startup company is founded on a shoestring and a dream. At this point it's just a bunch of friends doing a thing.
2. Startup company hits the big time. All of a sudden, money comes pouring in as fast as product can be shoved out the door. Cheers and celebrations. People quit their day jobs.
3. It is observed that to keep up with demand, the company needs to hire more people. A lot more people. Right freakin' now. Since there is currently no HR department and no hiring procedure, and no time for such niceties anyway, everyone brings in their friends. Most of said friends get hired on the spot.
4. Soon the company has grown to quite respectable size, but because it's grown so fast, there's no kind of structure. Everyone is just sort of doing their thing and working crazy overtime. Non-work relationships atrophy. People hook up with co-workers. Again, given the lack of HR, there's no one to say no to inappropriate relationships. Accounting and budgeting are, shall we say, less than rigorous. Responsibilities are ill-defined, and problems that should be caught early slip through the cracks and fester.
5. Chickens come home to roost. Growth slows, as it always must sooner or later, while expenses soar. Crises break out. Company politics rears its ugly head. Key people burn out or quit, and all of a sudden the company's future looks a lot less rosy. Money is still pouring in, but it's pouring out just as fast, maybe faster.
6. One way or another, corporate America (or corporate wherever) steps in to straighten everything out. Either the company brings in experienced executives to take the helm, or it gets bought up wholesale. The company's freewheeling culture is squelched, rules are imposed, responsibilities divvied up. The transition to a mature, established company begins.
You can't really judge Wizards today, post-stage 6, by what it was in stage 4.