For what it's worth, my understanding is the Dragon's circulation peaked in the 1980s and perhaps early '90s, which would seem to indicate that it, at least, was at that time successful as the magazine of the RPG community. If those numbers are inaccurate, then hopefully Erik or one of the other Paizo editors can correct me on them.
For that matter, Dragon was pretty much the magazine of fantasy in general - remember that at that time, Dragon ran the only regular reviews of fantasy novels, electronic games and miniatures that could reasonably be described as authoritative.
What other magazine in 1989 could lay claim to the title of "the magazine of science fiction and fantasy?" SF&F? Asimov's? Analog? Hardly. Those fiction magazines were much lower in circulation then, and still are - measured, last I saw, in the very thousands that Erik himself described as being unfit for major magazine coverage!
But the fantasy genre has balooned in the intervening years - witness the Lord of the Rings films, the mainstreaming and Hollywoodization of comic books that are essentially pulp fantasy or science fiction, the titanic success of electronic games like Baldur's Gate and Final Fantasy, and the cyclopean sales of Harry Potter. Geekdom, which generally overlaps with fandom, which exalts fantasy and science fiction above all other genres, is both mainstream and massive.
In 1989, Dragon was the magazine of science fiction and fantasy, especially fantasy, and fantasy was in everything but books sci-fi's very little brother in a secluded family that lived on the fringes of popular entertainment.
In 2005, there is NO definitive magazine of science fiction and fantasy, though fantasy and science fiction are the biggest genres of entertainment in the world (perhaps outside of TV, where production values restrict these two)!
I can't help but wonder if Dragon wouldn't be, well, the mass-market front-of-Waldenbooks (now Barnes & Noble and Amazon.com, I suppose) magazine it was in 1989 if the editors from 1990 to 2005 had stayed the course.
They didn't, and I don't think Dragon could recapture what it used to be after more than a decade.
According to Wizards of the Coast, D&D is bigger than it ever was in terms of players. Fantasy is vastly bigger than it once in the so-called golden age of RPGs (and Dragon magazine). So why are Dragon's numbers down since that time?
If Dragon is going to be "just" an RPG magazine, I think Erik is taking it in the right direction - covering topics that only Dragon can cover. A dozen d20 books cover most topics better than any magazine article ever could; only Dragon can (legally) give us Eberron, the Realms, beholders and D&D's named outer planes. I enjoy that stuff even though I don't play actual D&D, and I recognize it as a legitimate niche that nobody else can cover.
I'd have loved to see Dragon ascendant as the great wyrm fantasy magazine it used to be, but if it had to start out as a wyrmling again, I doubt it would be able to capture that empty throne.
I don't think Dragon would survive NOW as a generic RPG magazine, if only because its existing readers have become so agitated against non-D&D d20 and would presumably grow even more so at the presence of non-d20 material.