And then three things happened at once

1. Creative de-facto monopolized the industry often by unethical means (suing Aureal into bankruptcy, etc.), not letting much room for competitors, which in turn lead to diminishing quality on the part of Creative.
2. Microsoft didn't put hardware acceleration support into XAudio, which superseeded DirectSound.
3. Game publishers realized the vast majority of gamers didn't care about sound quality, so they could spent those resources on making the games look a little bit more realistic.