Well they were being 'outsold/outclassed' by Action and RPG games being made by most companies at the time (some console stuff looked 'shinier' than what was being made on PC).
That's the reason why at the time video game companies stopped making adventure games, they just weren't profitable...
Of course now, they are making a come back, perhaps due to better technology, more efficient/cheaper methods, etc. "dumming down for the "casual market', and other methods.
Sierra made their 'attempt' to get into that similar market, and utilize some of the same technology. But it didn't really 'catch on' at the time.
Now Phantasmagoria despite its 'limitations' that game actually was one of Sierra's best selling games... So was GK2. So the 'technology' really didn't have much to do with it. Although perhaps the 'new technology' helped 'sell it'.
I'm probably in minority, but I think that KQ4 is best game of the series.
I also think that Mask of Eternity isn't as bad as people always claim it is. While I'm not huge action fan, the game is actually quite enjoyable. But the biggest issue I had with MoE was it's somewhat disappointing ending. I would have preferred a longer cutscene which explains what happened to Connor afterwards.
And when it comes to fan games, I'm not too happy about the changes to the canon which they make. I like that the stories are relatively independent and everything isn't connected with everything else.
That's the great thing about King's Quest, there is such a wide range of great games in the series, that anyone of them can be a favorite to someone else.
I'd have to agree that KQ4 is an excellent game. I don't usually have it towards the top of my favorite list mainly because I'm a Graham fan (sometimes I place Graham games above KQ6 because of that, its very close its hard to decide which I like better sometimes).
But I have a special place for KQ4 in my heart!
Frankly, the series fluctuates for me, sometimes I like some games more than others depending on my mood, and 'what I want to play'. The only one I know for sure that I don't tend to ever replay much is KQ7. I just don't find it to be that fun... The style and characterizations never grew on me.
I absolutely agree that KQ8's ending is unfortunately anti-climactic. It builds up such an interesting story, one of the deepest in the series IMO. But the ending just leaves you going 'huh'? So what happened to Connor? Did he meet Graham? Did he remain a guardian of 'heaven'?
It was a dark time. I still kept buying adventure games, but one day I noticed that there simply weren't new adventure games in the stores. I had played adventure games passionately the entire 90s and now suddenly Sierra and LucasArts weren't making adventure games any more. I still occasionally played my old adventures, but for most part I just played strategy and roleplaying games. I'm happy that the genre has experienced a revival (although I think that most modern adventures have too easy puzzles and not enough Sierra logic).
At least where I was living, stores wouldn't even carry adventure games, and were phasing out carrying PC games at all... for the most part. You could still preorder them, and they'd be at the store, but game stores wouldn't normally have them, nor would they advertise them anymore. So the games kinda got lost, among the much fancier console marketing.