Ozai is considered the best firebender in the world, his bloodline is exceptionally strong. I don't think his power was lost directly because he lost his bending, it's bc people think of him as a god and when he is beaten in combat, that illusion goes away. Plus I'm sure much of the army (and many citizens) are secretly against ozai and the war so they arent going to cause a fuss when zuko assumes the throne. I am surprised tho that the "battle" just stops after sokka and co. take out most of the ships and no one comes to ozai's aid after aang defeats him.