When it comes to MMO design decisions, the customer is not always right. The challenge for the developer is that the "correct" decision sometimes makes it literally impossible for large portions of the market to play your game, no matter how well you do everything else.
From Raid or Die to EZ-Zerg
The thing about WoW's ongoing dispute over 5-man dungeon difficulty is that we've been here before. The year was 2007, and Blizzard had finally released the game's first expansion. After years of complaints that the endgame was "raid or die", Blizzard's response was to offer smaller raids. The cap was reduced from 40 players to 25, and TBC also offered both the 10-man Karazhan raid and the raid-like experience of heroic 5-man dungeons.
Though these changes made some of the logistics simpler (and some, like trying to run two 10-man Karazhan lockouts in a 25-man guild, more difficult), the lower numbers left each player accountable for a greater portion of their group's performance. Those of us who were below average in our old 40-man guilds no longer met the difficulty bar for this new, "more accessible" content. In my old guild, about a third broke away to form a new raiding guild, a third disbanded and scattered to other guilds, and a third of us quit the game.
No one outside Irvine knows exactly what happened to WoW's retention numbers in the wake of TBC. What we can see is how Blizzard reacted to those numbers with future development. As I commented way back in 2008, my guess is that Blizzard did not like the trend they saw.
Blizzard did not add another top tier raid to the game for 10 months after patch 2.1. In the interim, they added gear inflation in the 10-man ZA and, as Sunwell arrived, with the first iteration of high end raid loot for heroic dungeon tokens. Then Wrath arrived with zergable heroics (yes, even in the month the expansion launched) and raids so easy that even a PUG could complete them. Then Blizzard made the already easy content even easier by rolling out the dungeon finder and bribing Icecrown raiders to run random dungeons once a day.
It certainly appears from Blizzard's actions that they saw easier content as a way to draw more players into the endgame.
Ripping off the cast before healing the wound?
Making the game so easy was almost certainly the wrong call, and bringing the difficulty back up is most likely the right one (especially since the dungeons will only get easier as players overgear them). The problem is, as Eric at Elder Game suggests, that it's hard to hurt your retention numbers by making the game easier. By contrast, making the game harder because that's how things "should" be fails to address the core problem that got us to the Wrath era in the first place.
Many players are not looking for the current level of difficulty in their PUG content. Personally, I like the current dungeon difficulty, but the longer queue times (three times what we had in Wrath) are drastically limiting my ability to actually run dungeons. With a 15-20 minute queue and a 20 minute dungeon zerg, I could run a Wrath heroic whenever I wanted - I was actually spending the majority of my WoW time in groups. With a queue time of 45 minutes to an hour, and then about as long (or longer if things go poorly) to actually complete the instance, five-man content is a much larger commitment, which I can fit in maybe once a week.
Things aren't as bad as they were back in 2007; with the dungeon finder, at least I can actually get an instance group when I do have several hours to burn, where this was nigh impossible for a lone DPS in much of the TBC era. Even so, nothing in Blizzard's history since 2007 suggests that they're in the business of keeping players away from content though high difficulty. Perhaps gear inflation will solve this problem for them whenever they get around to releasing patch 4.1. Otherwise, it's going to be very interesting to see what gets changed.
(As long as we're digging in my 2008 archives, I suppose we can expect some patch 4.1 news around the February 24th Rift Headstart, since that's how Blizzard treated Warhammer.)