I suspect the ratings decline had less to do with Trek saturation (although direct competition between two Trek shows may have played a role) and more to do with the decline of the first-run syndication market and the failure of UPN as a viable fifth network (ultimately forcing it to merge with WB and form the CW in 2006).
I also think that as cable grew by leaps and bounds (which was occurring at exactly the same time DS9 was on) viewers had more choices of shows to pick from, and the casual fan (who might not even care that much about scifi, but started watching TNG because there were a lot slimmer pickings) just picked something else. In the cable market we have now, TNG would certainly not enjoy the kind of ratings it got during it's first run. That is not the way the market is structured any longer.
And frankly, DS9's ratings back then really don't have much to do with it's growing popularity now.
I think that audiences are more mature now...and now that there is some distance from all these shows, they can be viewed more objectively. I 100% agree with the assessment that DS9 is the most closely related of all the Trek shows to TOS. TNG is so heavily weighed down with 80's ideology it's become very dated. DS9 has real characters who are flawed and much more believable - much more like Kirk and Co. than TNG...whose characters are all so tediously 'evolved'.