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Veknoid_Outcast said:

In general I'd say Rare's decline was the result of three things: Microsoft's mismanagement of the studio and its properties, the exodus of key personnel, and the loss of Nintendo as a benefactor. 

This pretty much sums it up well. Its not really fair to put all the blame on Microsoft when Rare had a good amount of problems even before the buyout.

In Rare's defense, they have had some decent games come out during their time with Microsoft (Viva Piñata & Kameo), but unfortunately nothing on the same level as their output from the 90s.