I think fans make WAY too much of thing about what kind of city/town the schools are situated in.
I'm sure a handful of recruits make decisions based on that, but the vast, vast do not. They tend to go to places that are (a) successful and (b) help them get to the NFL. That means being a winning program and having top-notch facilities.
I think the simple answer as to why Colorado fell off is that they weren't willing to keep up in the facilities arms race with the rest of the Big 12 that started in the early 2000s and essentially never let up. CU was always behind the blue bloods, but all of a sudden OSU, Tech, K-State, Iowa State, etc., started pouring hundreds of millions into facilities through the mid-2000s and also blew past CU in that regard.
Now their facilities are dogshit compared to pretty much everyone in the Big 12 except Kansas; they compare a little better in the PAC just because most of the schools don't care about football, but still way behind schools they would be competing against for recruits like Utah, Oregon, Washington, etc.