India lost because they were crap.
In the first year of the T20 cup, India and Pakistan were unstoppable because they were the only two teams that understood the T20 format.
Yuvraj smashed Broad for 36 in an over; Sreesanth was actually bowling maiden overs and RP was the next big thing.
Similarly for Pakistan, Umar Gul was their bowling sensation and carried forward that form to the following World Cup, which Pakistan won. Also, Misbah-Ul-Haq invented the scoop shot that gave him a lot of runs and India the first World Cup.
Then came the IPL. In IPL I and II, since Pakistani players were selected, they got better international exposure and capitalized on it to take the next World Cup.
Meanwhile, England, New Zealand, Sri Lanka and the West Indies were slowly getting the hang of playing the shortest form of the game.
Australia, however, were getting raped, which is why they have come back with a vengeance this year.
This year, IPL 3 saw no Pakistani players. There were more Caucasians than there were in the previous two tournaments. Hell, even Jacques Kallis was selected to represent South Africa for the T20 this year because of his IPL form.
India had just finished off two seasons - one with South Africa and earlier to Bangladesh - before IPL began.
The players felt that money was more important that resting their bodies.
The effect was disaster.
On the other hand, Pakistan hasn't played too much cricket are probably taking the same plane as India is.
So, is the IPL to blame totally? I'd ask Lalit, but he's got his own issues to deal with at the moment