I remember those years reasonably well, as I was involved with D&D. I met Ms. Williams a few times, my company was publishing OD&D in Portugal back in the late 80's early 90's, and so this sort of makes me an insider, also because I was a good friend of Andre Moullin (and still am, after all these years he's been away from the hobby) who used to be licensing and foreign sales VP at the time at TSR.
No one comes clean out of that story, as is usual, but some people behaved worse than others. Gary Gygax wasn't the greatest manager in the world, and he has admitted that. Few people may remember that the first great wave of layoffs was in the early 80's and orchestrated by EGG, since they had pretty much let the company grow too fast, hired too many people, let expenses loose and so on. The Blumes seem to have been reasonable managers, but worrying mostly about their money. The company had grown too much, and those that were creative couldn't run a company that had grown from 3 or 4 to 100 plus, and those that could were too blinded by their new found wealth to actually care too much. Plus, there were enough problems between the two parties to insure that it would be hard to run TSR under any circumstances. A "sanitized" version of this can be read in the 25th Anniversary Box.
Mr. Moullin and Ms. Williams were two of the various people EGG brought over into TSR to help restructure it. She used then a bunch of legal, but (IMO) not so morally justifiable ways to wrest control of the company from EGG, and the fact she was a well-known public figure from a well-known family seems to have helped her in the lawsuits and legal proceedings (in Wisconsin). Most of this is stuff I heard from Andre Moullin, and as usual there are sides to every story, so take with the usual grain of salt. There seems to have been serious and real issues with EGG's time when he was in California, ie. re. whether he should have been paid for all of it and whether it was all company time, and so on. Probably this was only used as excuse, but it was real.
But I am quite convinced that Ms. Williams really ran the company to the best of her abilities, which were very good, but this meant that she ran it to benefit herself to the exclusion of anyone else, employees included. There are some very fine lines re. ethical issues, but one might very well question the continued release and overprinting of a game that was really selling close to zero, while paying yourself royalties advances based on 60% of the printruns. And since I was a partner of a company that distributes RPGs and MtG and WotC products in general in Spain, Portugal and Brasil, and I was there when WotC bought TSR, and talked to pretty much everyone, including Peter Adkinson, I was told there were TONS of unsold Buck Rogers in the 25th Century RPG in the warehouses.... And at the same time that Ms. Williams got paid a really good salary, employees were underpaid, given bad equipment to work on things, etc.... Just read Ryan Dancey's accounts of what he found when he went and audited TSR for WotC before they bought it.
So, in the end Ms. Williams made money throughout the entire period, as the best paid employee there, got tons of royalties and eventually sold the company for cash in hand and no debts to her (for millions of $). I would say she managed the company just as she wanted to and accomplished most of her goals. Also, she was independently wealthy before this entire episode of her life.
These are my opinions based on stuff I heard from a lot of the insiders, they may not be entirely true and as usual one's perception of reality is skewed by the people we know, those we call friends and so on. To me, Ms. Williams was always unfailingly nice and polite, even though the 2000 or 3000$ royalties per year my company was sending her were probably close to insignificant. But she did despise gamers in general and made no secret of this. I remember her throwing a fit at GenCon (92 or 93, can't remember) because some girls were in a bikini chain mail suit, and she was on a roll and badmouthed and cursed gamers (loudly!) for at least ten minutes.
I think, because I was there, that gamers and fans already hated her long before any news of TSRs mismanagement were known. And to most of us, unlike the new generation, Gygax was a sort of hero. Mind you, I was under no illusions about his qualities as a manager, but I know for a fact that you can run a company efficiently and still be nice to the creators, as WotC (under the original shareholders) proved in the way they treated Dave Arneson, for instance.