As soon as you announce a new product in an existing line, you are effectively competing with yourself. If, tomorrow, Apple announced there'd be a new iPod in July, many consumers would either (1) bargain-hunt, or (2) wait for the new shiny.
Now, I know I stopped buying 3e books after the announcement. I know at least some others did, too - and I'm tempted to say "many". I also remember some post-Gen-Con wrap-up threads from 3pps which said, more or less, the 4e announcement cut their sales. It's safe to say that 3e was losing more customers than it was gaining.
Now, of course the market didn't completely dry up. I never said it did. It simply shrank - which I think you acknowledge by saying 3e products sold "fairly well". If your profit margin is small to begin with, like everyone in the RPG industry, you simply can't continue to have the same expenses while making less product.
That spells ruin. If your profits shrink appreciably, you can't spend as much on research & development. If you don't spend money on R&D, the final product is likely to be of lower quality.
That's what all of these doomsday scenarios amount to - a simple shrinking of profits, perhaps as "slight" as 10%-20%, can affect you for years to come.
And I get "Maybe" from your post because, if you go from saying "No" to saying something else, anything else you say is basically a Maybe and, in all likelihood a Yes. This includes "No comment."
-O
Let's get some prespective here. As I already pointed out, the statement was not made three years in advance but approximately 6 months prior to the official anouncement of 4E. Also, they continued to produce and sell 3.5 products for many months after the announcement of 4E. In fact,t he last I heard, 3.5 PHB's are still selling well, and Paizo's 3.5 sales really took off after the announcement of 4E. According to you, they should have never released any 3.5 products after the announcement of 4E, but they did and it seemed to work out well for them and 3rd party publishers.