(re: What about new sequels?) I don’t think that diversification of product had an effect on the quality of the adventure games, as the games were developed by different teams, usually at different sites. Maybe the Police Quest series was harmed by this diversification, but in reality that series started of brilliantly with 1 and 2 and then was pretty average after that anyway.
I think some games were harmed by management forcing them to be finished by certain dates, e.g. Quest for Glory 4. I also think that the management decisions played a big part in what went wrong at Sierra – series that weren’t huge sellers were subsequently canned, even though the games were brilliant.
And as adventure games became less mainstream/popular, the trigger happy management started making more and more tough calls.
I agree with your point about Sierra could’ve remained concentrated on high-quality adventures etc, but I think by that stage Sierra had become so big, and owned so many other companies that they had to try and keep on being a big player.