You know... really agree with you.
They realized they created something they couldn't sustain and with each step forward with gear, realized they were scaling things at a rate they couldn't keep up.
I mean, look at the pace of item "improvements" between Azeroth, BC, and WotLK.
Level 20 item:Onyx Claymore
Level 40 item:Boneslasher
Level 60 item:Typhoon
Level 70 item:Lionheart Executioner
Level 80 item:Claymore of the Prophet
Level 80+ item:Citadel Enforcer's Claymore
From level 20 to level 60, we see a shift in composite stat bonuses (sum of stat bonuses on gear) go from a sum of 20 to 44.
A gain of 24.
From level 60 to 70, we see a shift of 44 to 96.... a gain of 52? In ten levels?
It gets worse. From 70 to 80, we see 96 to 205. a gain of 99, again in ten levels. But scarier yet is, that at level 80, we have gear that can be a difference of 139! For the same character level!
Over the course of 40 levels, a gain of 24 points in various stats, yet in WotLK, we have a gain of 139 over SAME LEVEL items?
It looks like this:
We saw in Burning Crusade a significant jump in the value of items. A level 70 was significantly more powerful than a level 60, whereas a level 60 was on a similar linear progression as the level 50. At 80.1 (which is the level 80+ item from the example above), we have a huge leap.
If we looked solely at level 0-60, we still technically have an exponential growth, as between 20 to 60, we see growth, with an 8 point gain between 20 and 40 and a 16 point gain between 40 and 60, increased by a factor of 2. Between 60 and 70, only ten levels....we have an increase of 52 points, a factor of 3.25, a significant jump. But in Wrath, we see a jump of 248 points from level 70 to level 80, a 4.769 factor increase.
At this pace, what we'd see in Cataclysm, would be on the lines of 5.60 to 6.0 factor increase (roughly, and I'm cutting it back since Cataclysm is 'only' a 5 level jump), and we'd be seeing items with stat bonuses totaling around 1900-2000 points. We'd be seeing weapons with +800 strength and +1000 stamina or more. This doesn't even take into account things like armor penetration and defense!
I think this is only part of the problem that they were facing. As it was, they had already rendered so much of the game irrelevant to the end-game player. I've been able to solo run Magister's Terrace with my death knight, for example. If I were a dev, I'd be looking at this and thinking, "wow... I just rendered 90%+ of game content pointless to a huge chunk of the population".
I think they're looking to salvage some of that game content, and make a move back to what they had previously, while putting an interesting new spin on things. But I think they saw a need to rein in the escalation of item progression.
Edit: If you're wondering how I can up with a score of 344 for the last item, I took into account maximizing the gem slot with a +20 gem and the built in slotted item bonus.