"Classic" gets complicated as a term because the Basic D&D of Moldvay and Mentzer is a long way from what I consider the Classic D&D of the original game and Holmes.
Well, as long as we know what we are talking about it doesnt really matter. The term "classic D&D" was actually used for one of the late intro sets (Compatible with the RC, BECMI etc).
I generally use Classic for the whole range from OD&D and including BECMI the RC and the 1990s boxes. The rules in these games are surprisingly similar to one another. I would generally use Original D&D about the 1974 games and BX, BECMI, RC etc about the later sets which again are even more similar.
One of the big problems I have with the huge numbers of Red Box sets sold is that I really don't know how much they translated into people playing the game. A few years ago, I came across a Red Box in the house of a friend - they'd bought it 30 years ago, but never used it (the dice were still unopened). What I really would like to know is how many sets of Expert D&D sold - I'd say that would be a far better indicator as to the popularity of the line.
However, you are quite right: During the late 80s and very early 90s, the game saw some remarkable work being done in the Known World. (And then... it stopped).
Yeah, I have no idea about sales figures for the Expert Sets. One thing worth considering though is that TSR did attempt to convert Mystara to AD&D. I always believed that their motivation for doing so was that they believed it could convince Classic D&D players to switch over to AD&D. So TSR must have believed there was a potential market there. Of course, TSR did a pretty bad job at converting the setting, at least if the goal was to attract existing Mystara fans to the line, which may be a reason why it died.
OTOH, the decision to kill of the Classic line and later Mystara probably had as much to do with the overall situation of TSR at the time and the steady progression towards bankrupcy and being bought by WotC who decided to shut down everything NOT the Forgotten Realms at least untill the situation could be evaluated/3E could be introduced.
Again, WotC managed to find a permanent sollution with Arneson so after that the "Advanced" was dropped even if 3E/D20 was more similar to AD&D, in spite of a few BECMI-isms being brought over.
As to my own experiences with Classic D&D, we started with the Mentzer Basic Set and Mentzer Expert. Although we bought and played AD&D as well, the BECMI campaign kept going untill the late 1990s when we decided we needed a full break from classes, levels and what we saw as artificial restrictions. After playing GURPS, RuneQuest, Feng Shui and many other games for a few years, I got back to D&D with 3E. After a while though I started to look back and found that BECMI really does everything I want from D&D. Sure I have picked up 5E and will probably give it a shot, but most likely I will use BECMI unless the players insist on something else.
-Havard