I think that is the gist of it. BJJ isn't more watered down per say, MMA is just a lot stronger. More athletes, more knowledgeable athletes, much, much, much more opportunity to train and compete MMA than in "old school" Vale Tudo of the 90s and before.
I agree that fighting in MMA was probably seen more as the pinnacle of BJJ for a while, I probably still see this way myself, and that now there is more notoriety to be had being a top level BJJ competitor. It is also true to be at the top level in sport BJJ, you have to focus a lot on that and to be the level in MMA you have to focus a lot on that.
As an aside, I hear the term "BJJ lifestyle" thrown around a lot, but what do people actually mean when they say it? Train a lot, say Brah, and eat Acai? Focus on training, living healthy, and flowing with the go? Gracie Diet, surfing, putting fools to sleep? Making training the center of their life? Kidding aside, I hear it a lot, but I'm never exactly sure what someone is coming from when they say it.