Lorraine Williams certainly was a witch, but the corporate rot at TSR actually was much more widespread than that. I dug out an old article by Ryan Dancey from 2004 (a few years after WotC took over), where he describes what he found on a "fact finding/due diligence" mission before the acquisition. Ultimately the biggest problems were the overstocked inventory, fracturing the game into so many settings/variations (and assuming that all of them were going to be as popular as the core rulebooks), and worst of all zero customer feedback.
Dancey's article doesn't go too much into it, but there was already a ton of waste back when Gary was still around. I don't remember all the details, but I seem to recall that licensing fees, producing the D&D cartoon, and having a west coast HQ were chief among the earlier problems.