Funny because Palladium WAS a top tier RPG company, up until sometime after 2000. Sadly, the internet did them in..
I don't think piracy "did in" Palladium, though I do agree with you that it certainly hurt.
I think what "did in" Palladium is the same thing that harmed GURPS and had previously killed off Rolemadter in the late 90s (though the bankruptcy of ICE had more to do with their distributors, their CCG and the shock wave of TSR's "printer problems").
All of these systems arose as a reaction to 1st editon AD&D and continued to find their niche throught the 2nd Ed era. The churning of gamers out of the TSR fold and into the customers of ICE, SJ Games and Palladium was part of a cycle of reactions to the AD&D game system that did not model skills well and did not attempt to be "simulationist" in many aspects of its design -- at least to the degree that fans of those games preferred.
Ultimately, through bloat, each of them became unwieldy and the original impetus that lead to the games being popular fell out of fashion.
What 3.xx set out to do was to attract those gamers who had left D&D during the 1st and 2nd ed years to "come back" to the game. It succeeded at that -- and brilliantly. And so many RM, GURPS and Palladium players are now D&D players again... and some are now Pathfinder players, too. (And some stuck with GURPS, RM and Palladium or RIFTS, too.)
Now we have Pathfinder as the current "reaction" to the current edition of D&D. People speak of the "Edition Wars" as if it was something new. rec.games.frpg.advocacy was around long before 3.xx was even thought of. It's an argument almost as old as the game itself. *shrug*