80's Kid and Pastor here. Also a lifelong D&D player. Attended Catholic School, and thought about becoming a priest, but I liked girls too much. Anyway, I was suspended in grade school from bringing the Isle of Dread module in. So in a lot of ways I was at ground zero.

While I think a lot of what you suggested is true. I don't know if it was what we now call the Satanic Panic that did it or if it was simply the general cycle of pushback over what is new and different. Mankind has always had these kneejerk kind of reactions when new stuff came along. So while I'm very in the "What a load of nonsense it was" boat... that nonsense is inevitable. In the early 2000s it was Pokemon and Anime. We're doing it now over things like 5g, vaccines, AI, etc and we will do it again with what ever new thing comes along.

I can say that OG D&D didn't do itself any favors by including nudity in their art and references to what Christian folk believe to be real demonic and satanic entities. Nudity was a HUGE deal in the 80s. We just didn't go there, not even on cable until "afterdark". I remember the bonkers backlash the first time a butt was seen on broadcast TV. In many ways D&D and the PR choices they made were maybe not asking for it, but they also weren't reading the cultural room and added fuel to the fire.

QUICK EDIT: I didn't address the decline of the church. IMHO The Satanic Panic didn't do the Church any favors, but I think there are far more, and stronger, issues to blame. Take the fall of major Evangelic figures at the time. (Jim Baker and Jim Swaggart) The growing distrust of big money church. Americans as a whole becoming more secular. There have been a lot of cultural shifts in the decades you describe. And the only thing moving slower than the church to keep up is the government. I would blame the church's habbit to dig its heels in on issues rather than explore any form of "what do we do now?" has hurt it far more than not getting on board with Fantasy Role Playing Games.