According to Nielsen ratings, Conan and Letterman went back and forth until early September, and in the month following Leno's launch, Conan's ratings went down 12%. Then Lenos ratings really tanked in November and early December, and overall viewership shrunk to roughly 35% of what it started at, and now Letterman is handily winning night after night. Even Fallon, who brought Late Night up to beat the Late Late show easily during the summer suddenly fell off as soon as Leno started.
The pattern here is pretty clear: Leno has pretty much killed NBC late night, and more specifically The Tonight Show. TV critics have even begun labeling it "the Leno effect".
I just don't think it's from Leno suddenly dropping of a cliff. Outside influences aside, I don't think he's too much different than a few years ago when he was on top, and I have a hard time believing he suddenly got bad as a host. I think it has more to do with the fact that NBC felt the need to try and fix something that wasn't broken, and then even did that in a compromising half-assed fashion. Generally, people just don't like a late night show being on that early, especially if it might make it so a potential good conventional show in that time shot never gets a chance to come about.
It might take some people at NBC management swallowing their pride and admitting making a mistake and a horrible (although even obvious to most people before the fact) miscalculation, and maybe even eating the value of Fallon's contract to let him go, but if they were smart they would move them both back to the shows and time slot they used to have when the viewers were happy with it, both of them were on a show where they were in their element, and the all the affiliates were happy. Not even counting the drop in ratings both Leno and O'Brian aren't the same people and don't have the same quality as they used to have. Basically NBC ended up getting the worst out of all worlds from everyone because some people pushed an bad agenda though do to their own arrogance.