That meme was the generally consensus at the time and still floats around on SF messageboards and listservs. The general theory was that Lorraine Williams did it to garner tons of royalties from the sale of XXVc and that the Cyborg Rules from Gamma World: Epsilon Cyborgs and the Powered Armor from Dragon 129 "Armored and Dangerous" were supposed to be in Zebulon's Guide vol. 2.
Gary Gygax said:The Blumes had forced me to accept three "outside" directors on the board. These three petty businessmen, two executives and a lawyer, were absolutely ignorant of the gaming business, and under their direction, and with the Blumes leading the way, TSR had accumulated $1.5 million debt that they couldn't figure out how to pay. Amongst their ideas were the dropping of the RPGA and the sale of DRAGON Magazine. After some thought, I presented a long letter to the entire board, outlining the mismanagement of TSR by Kevin Blume, and demanding his resignation and replacement. The board voted four to two, the Blumes abstaining, to remove Kevin and put in place a pro-tem president, one Richard Koenigs. Some 90 relatives of the Blumes were removed from the payroll, various corporate owned and leased cars, scores of them, were gotten rid of, unused system office furniture owned and leased was likewise sold or returned, and two major releases were rushed into print - Unearthed Arcana and Oriental Adventures (both 1985).
1987
Six Sathar Ships (minis)
Privateers (minis)
So the product line ended in 1987, not 1985
It's interesting that both of those products are listed as softcover books by Random House Publishing on Amazon, not as actual miniatures (the term "miniatures" appears only in the title of the book on amazon). That makes me question the accuracy of those entries.
Even if they are accurate, I still think the assertions that XXVc killed Star Frontiers (or that Star Frontiers was some kind of unstoppable Sci-Fi giant at the time of its demise) are largely unfounded. It just sounds like another attempt to demonize Lorraine Williams, to me.*
*Hardly suprising though, as many fans would have people believe that she was responsible for all of the problems that TSR has ever had, prior to or after her tenure.
What's even more perplexing about any Cyborg rules--don't have the Gamma World book in question--but at one time TSR was going to release a game called "Proton Fire", which was all about Robots, Psiborgs or Psybots, Andriods, etc. Eventually, it was decided that instead of its own game it would be an expansion to Star Frontiers. But AFAIK, it never game out.