The grass was always greener in the past, when we were young and still had waists... Oh, for the golden days of yesteryear, when beer still came 33cl bottles instead of 30cl and small furry creatures from alpha centauri were still properly small and furry.
"I don't have any research to back this up with, but my own anecdotal feelingis that KDE went from being the preferred choice of over 70% of Linux desktop users in 2004, to less than 30% now."
That might be true, or not, nobody has any realistic numbers, but it could be true. If so, I doubt it's KDE4 that caused the decline -- but rather the growth of Ubuntu which shipped Gnome. On the other hand, the KDE developer communities has grown and grown and grown since the KDE 4 effort began, and usually, a developer community grows with the user community and contracts with the user community.
"I still lament the fact that no community sprung around KDE 3.5 to fork it."
There is: http://www.trinitydesktop.org/ -- and they even are porting KDE 3 to Qt4 _again_. And you know what? The KDE community doesn't bear them _any_ ill will. Trinity is even developed right inside KDE's subversion repository.