Looking back, the original season of The Ultimate Fighter had a bunch of goofy competitions and the original lose = go home rule. Today's version is much more streamlined and the formula is way better, even if the overall show is not. However, you have to put things into context. TUF was a brand new concept back then and Zuffa took a big gamble that ended up paying huge dividends. As untested as it was, the first season of TUF is a foundation stone in UFC history. No one knew how the show would work or if it would even be viable at all. Now, one could argue that the company wouldn't be where it is without it.
However, like all television shows, the newness/novelty wears off. I think the show was fading even before season 10, so in some ways that was a "comeback" season where TUF regained some of its former stature. There have been a few bright spots since then, but out of the roughly 30 or so TUF seasons (including all the other X country vs Y country stuff), good fighters have been few and far between. I don't think it's anything against the show necessarily, it's just that it has run its course. It's a stale formula and doesn't have much to offer anymore.
Another big piece of the puzzle is the overall sport of MMA and how it's grown from a fringe sport to one on the periphery of the mainstream. The Ultimate Fighter undoubtedly helped grow and develop MMA as a whole, but in turn it also made its own product less viable. When Forrest Griffin and Diego Sanchez went through TUF, that was one of the only ways to get a career in the sport. Compare the MMA landscape in 2005 (at least in the United States) to where it is now. There are far more B-leagues and places to cut your teeth. I remember Nate Quarry talking about having to go to a boxing gym, a jujitsu gym, and a wrestling gym just to get his training - there were very few MMA training centers in existence. Now they're almost as numerous as boxing gyms.