There are many reasons for the player loss. The obvious ones have been mentioned already, such as hardware issues with the upgrades and things like the tutorial that turn off new players, as well as a lot of the mechanics just not being fun or deadlocked in 'grind' territory.
Other issues are as follows:
Problem: Game expansion. It is counter intuitive to think that making a game larger with more area to 'explore' will actually reduce the number of players, but it is a fact under certain circumstances. Expanding the area people can/have to(in the case of quests and hunting) play in reduces the population density to the point where the game seems abandoned. An MMO needs a certain perceived level of use for most people to think it is worth playing. This also affected established players as their RP base became too diluted to gather the crowds, or even small groups that they felt they need to RP.
Solution: Get rid of some of the road maps, put the towns closer together, and even close down some towns if the population is too low.
Problem: Loss of 'Alpha' players. These are the players that don't just go ingame and play or look for things to do. They go in and make things happen. Every time you saw them or one of their characters, you just knew something was going to happen. A few that come to mind are Proglin, Xillix, and myself. Once we started an event, it was hard not to get involved in it in some fashion. However, it is exhausting trying to put on the large, complicated events that really bring in a lot of players. Small RPs are fine and great, and I love them as well, but they don't really bring in the numbers, and generally the large events give fuel to the small RPs (if the large events are designed right).
Solution: More tools that make it easier for players (and GMs) to put on events.
Problem: Changing feel to the game. Everyone who has been around for a few years knows what I am talking about. Part of it comes from the game itself, with each little change you feel like you are losing a part of 'your' game. Part of it comes from the player, losing that feeling of newness and seeing people you played with leave the game. It is a complicated equation.
Solution: There is no easy solution to this one. You have to keep adding to the game while keeping a familiar feel to it.
Problem: "Just another grind game." Let's face it, anything that does not involve roleplaying in PS is generally a complete grind. There are a lot of 'free to play' games out there right now that offer the same grind, more players, more polish, and more things to do besides grind. Even though you are severely limited in what you can do in those games unless you start paying, you still have more things to do than PS offers.
Solution: PS needs to offer something unique and fun that comes from the game (roleplaying comes from the players, and often ignores the mechanics, so does not count towards this). What that should be, I don't know.
Problem: Time-in-making. People are impatient. If something is in development, they like to see progress. PS has sometimes gone for almost a year with no visible progress at all. This does not mean progress is not being made, just that it is not being publicized. People simply don't know what is going on, or if anything is going on. For a lot of people, it is not worth playing if you don't know what is being worked on, or what changes are planned. The 'surprise' factor of new features/art/quests/whatever does not mean much if you are no longer around to see them.
Solution: PS has a lot of hard work in front of it if it is to overcome the 'verge of vaporware' feel it gives off. It needs to get people excited about things that are being worked on as they are being worked on, not try to surprise the few players that are left after long periods of apparent stagnation.
