well, I believe it was primarily Ira Behr's idea to have Dukat somewhat mirror Hitler. they gave Star Trek Mag an interview about it IIRC. I think the going opinion of TPTB was that THEIR take on Dukat was slipping through their hands via Alaimo's acting (which was nuanced and layered) and the fans' reaction to it/him.
the character started out as the one fans loved to hate, but it quickly became one that many fans actually loved and looked forward to seeing. during DS9's reign, Sisko was never as popular as Dukat (Sisko's popularity came much later, when the DVDs were released), and the writer's idea of Dukat was something that Alaimo (I think from what I've read and also heard from the man) fundamentally disagreed with.
hence, the decision to de-layer (and perhaps even de-fang) him. a less complicated, more black and white villain is easier to get rid of without pangs of the [creative] conscience.