I'm not sure either, though he's always struck me as a bit of a flake. Also seems as if the level of competition in sprints has really taken a step up in the last couple of seasons, perhaps at the same time as his team's focus has shifted more towards competing for GC? And didn't he have a bad injury a couple of seasons ago? I honestly have no idea, but would be good for him to get back to where he was anyway.
2009 - 1434 CQ points, 9th on the CQ rankings, 11 wins.
2010 - 1598 CQ points, 7th on the CQ rankings, 8 wins.
2011 - 953 CQ points, 31st on the CQ rankings, 5 wins.
2012 - 521 CQ points, 94th on the CQ rankings 2 wins.
I know that CQ can be misleading, but that's just a catastrophic decline. In fact, it's even worse than it looks because when he was winning a lot, he was winning stages of GTs and the like rather than just "shitty small races". It's the sort of pattern you'd expect from someone who was at the end of their career. It's like he went from being a Greipel or Kittel to being a random Ag2r sprinter overnight.
(edited to add: Actually, the decline is much more sudden than the above makes it look. His 5 wins in 2011 all came in the earlier part of the season, culminating in him winning stage 3 of the Tour. It's immediately after that the his shit form starts. Up until then he was on course for a season not significantly worse than the two before).
You are almost certainly right that the standard has gone up, so there's a bigger cohort of very fast but not quite Cavendish fast guys. But his decline is too drastic to be just caused by that. You're probably right about injuries and flakiness too. I'm not sure if him getting less support preceded his drop in standards or followed it. Certainly nowadays, it would be a pretty brave DS who decided to prioritise his chances over those of people like Hesjedal or Martin.