I don't deny any of that, but considering this is a superhero game and the idea is to be powerful I'd ask why they couldn't have done any or all of the following instead:
1) Don't change the existing villain difficulty, but make them worth less XP
2) Make spawn groups bigger
3) Make newer villain groups tougher and/or more accurate
4) Buff the under-performing sets
I can see the reasons behind ED, mechanically speaking. But business-wise I didn't like being treated like an idiot, and from an RPG perspective I didn't like to see superheroes drained of their powers for no reason besides they were too super.
1: That doesn't address the BALANCE issue between the uber min-maxed characters and the normal ones. Believe me, some characters back then were pretty weak to play with. Making mobs worth less XP would hurt everyone, but the min-max builds would survive it a lot better than the average builds.
2: That also doesn't address the same issue. Make spawns bigger and the weak-average characters get hurt, while the uber characters just say "thank you for giving me more mobs to herd to the Blaster who will Inferno them in one shot".
3: They certainly could have added mobs like Cimerorans, but it leaves those mobs with hurting the weak characters more. It also still allows characters to avoid the newer mobs and focus on killing Praetorians, Nemesis, or whatever they already could handle.
You see, the problem with solutions 1-3 is that not all characters were of the group that was so powerful that it was playing the game in ways that the Devs did not wish to see. A lot of characters were not doing that, and back then a lot of sets were pretty weak, for whatever reasons. Since then, your solution #4 has been implemented a lot, but back then SR sucked, Ice Armor did also, I think that Dark Armor was still in the suck category, most Blasters were terrible except when used on herding teams (after the Smoke Grenade fix), etc. You couldn't implement solutions to just make the mobs harder, or you would hurt the newbie players more than the min-maxing power gamers.
Now, #4 is certainly something to do. But it basically ignores the problem, because it doesn't do anything about the overpowered characters herding and nuking 200 mobs at a time. So it's a good point, but it's a completely different issue from the balance problem between the min-maxed character and the average-weak ones. At the time, some version of ED seemed like the best solution. I don't think too many players, even those with game design experience, agreed too much with the exact type of diminishing returns used, and nobody liked how it was described and justified by the Devs, but it was not overall too bad a solution. And I can even get behind releasing it while still working on the other part of the balance (adding IOs), because of how long it took to create the IO system.