Picard has to be speaking a bit hyperbole here
Fair enough, even though he isn't necessarily the type and the acting might not quite indicate it on that particular occasion.
So they might just be a couple thousand, ten thousand or hundred thousand years "ahead" of humanity, similar to the Vulcans (who didn't do all that much either until humans showed up, if you think about it)
...Not surprising, what with living in a desert that probably didn't cater for their kind at all (them being descendants of Sargon's folks somehow, perhaps colonists with amnesia, perhaps criminals or fanatics). And the Vulcans did suffer an explicit setback at roughly the stage where we humans have finally started making high speed progress, that is, something that can be measured in mere generations.
A nuclear war would not have set mankind back any if it happened to the Old Kingdom folks or to the builders of Stonehenge. Then again, having one back then would take some doin'. What
would it take to set back the builders of cool cities (out of clay) and makers of great art (out of clay) and philosophy (out of nothing much)? The whole eastern Med going dark when Mycene fell didn't set us back by more than a few centuries. Razing Egypt would only have meant that we'd now list some slightly more oriental achievements among the Seven Wonders. Progress back then was so slow that telling it apart from a standstill wouldn't depend on the occasional Armageddon much.
So we don't have to worry about the setback theory if we accept the content-with-civilization one: they don't need to go hand in hand, but OTOH there's always room for constant setbacks in the content-with-clay-cities model.
Of course 'SciFi Writers have no Sense of Scale" and all, and you can see similarly static civilizations in other works and in Fantasy, like Middle Earth where there weren't that many improvements or change in technology in the thousands and thousands included in Tolkien's chronology. For example the Dwarves invent chainmail in the First Age, and even at the time of the Lord of the Rings (some 6500 years later) nobody has invented any better armour.
What does it take, this progress? As far as we can currently tell, war is a key ingredient, and possibly the only one that ever matters. And you get angry people if you live in a fractured landscape. Might be most places have none, what with them living on planets terraformed by the Ancient Ones to utter perfection. Or then they do, and they get over it, and are so much better off for it that they gladly give up progress.
Perhaps Earth only makes progress because a few dozen million years ago, somebody messed up the 'forming bad, by having a big phaser fight above what would eventually become the tortured coastlines and mountain ranges of Europe?
In-universe the Bajorans might be held back in some ways due to the Prophets. They might not have colonized much, due to their wish to stay close to the "Celestial Temple".
We have every reason to think the Prophets get them in their dreams. Progressive thinking might be impossible for them, even if their very brains aren't engineered with blockers for it.
It strange, because giving the Bajorans an old empire with the Cardassians occupying their planet and all their colonies would have not really changed all that much about them.
Well, two folks who both wish to unwrite the (potentially joint) history of each other have great odds of succeeding if they are interstellar superpowers. For all we know, they're the same species, somehow divided. (And for all we know, Vulcans and Romulans are an equally complicated matter, nobody knowing any longer which planet, if either, was the original home.)
Timo Saloniemi