There was a great deal wrong with EQ at the time outside of gear--attributing the sub hemorrhage is pretty disingenuous. People went through multiple expansions where small group/casual content did not keep up with the gear curve, at all, and then got plopped into a raid expansion that was inflated as though everyone had been raiding for years.
No one is saying EQ's overall design was pristine--they are saying that certain elements got thrown out that maybe shouldn't have been. One of those being flat gear--flat gear didn't deserve to be trashed because the designaroundit was a shit pile. You can't just look at the gear curve in a game like EQ, which had horrible balance, anemic group content, poor gear balance, poor gear scaling and say---yep, it was this one system which made it suck. Did it? Or did all those systems come together to form a huge gulf?
Anyway, you're not wrong in your assessment of the problems but I don't think it was the flat gear that caused it. EQ had a serious Monty Haul (Campaign version) problem from Velious on--and a severe myopic vision beyond raiding. I would say those two things attributed more toward splitting the player base than the gear system--the gear system was just the actual physical symptom/symbol when it all came to a head.
Edit: Bleh saw your reply to Tad, hah, I think we agree. There were huge issues with how group content was done vs how out of control and "monty haul" raid content had become.