The downfall of the Scarred Lands can really be attributed to one thing: market oversaturation.
On one hand this was S&SS's problem. They produced an insane amount of products for the setting that, in many ways, rivaled what was seen for Forgotten Realms over a four year period near the end of TSR's life. It's impossible for anyone to keep up with the SL and still follow mainstream D&D releases. What helped slow the bleeding was the diversification of S&SS, mixing in Malhavok, Necromancer, and Firey Dragon products that veered away from the SL line. But, in the end, S&SS spent too much time releasing nothing but SL products. Quality fell, intrest waned, and soon the expense of another product was greater than the offset profits elsewhere. A big warning sign should have been when Relics & Rituals stopped being about SL magic and started being about time period mini-settings.
On the other hand, 3e (and 3.5e) D&D is an aging product. In the beginning there was a limit to available information, but WotC and other D20 companies have covered and recovered most topics anyone concerns themselves with. Lately WotC has made a particular effort in "branding" among D&D products, making sub-lines that detail specific topics and are easily identifiable. It builds repeat purchase confidence. Further, the aura of "official" makes a lot of gamers trust WotC rules over similar D20 rules regardless of which is more balanced or better written. With room for new material under this edition thinning on all sides, it makes it hard to push a bloated, dated, mechanically questionable setting in a market currently defined by a drive to push tools into gamers' hands that allow them to ignore campaign settings entirely.