The market was saturated for a reason: people were buying the stuff---it was successful.
My thoughts about saturation are that the entrance barriers were very low (you got a computer, check, you have a text editor, check, you too can be a RPG designer). That's neither here nor there though, and I hypothesize that some higher ups saw significant sales to 3PP's and thought "hey, that spending should be coming to us, it's our system" and (stupidly) restricted things with 4e's license and created significant competitors.
I'm guessing that it was not successful enough, I would expect to see more marginal returns from late-run books, like Monster Manual V or Complete Champion. Again, the higher ups, probably put the pressure on the D&D team to increase revenues. With only 3 years between 3e and 3.5e, I'm guessing that the design thought they may have to go in another direction or risk everyone just ignoring their new offering.
Again, D&D may have been thriving, but if Hasbro wasn't seeing the returns, obviously things had to change. For me, I liked the changes, for others, not so much.
I do say that I hope 5e isn't some water-down frankenstein version of 3e and 4e cobbled together that neither group likes.
Edit: Regarding Bill's post, I agree with this. I loved Final Fantasy Tactics and Square still made some good traditional RPG FF's as well.