From now on, whether he likes it or not, he is on the decline.
I don't see how that's a given. For all we know, breaking from DT and being "just a drummer" for a while rather than spokesman, producer, arranger, and all that, is just what he needed. He's worked with Neal and them before, but never with Avenged Sevenfold, and the Mike who returned to DT may have been quite different from the Mike on the last album and tour. Okay, that didn't happen and instead he moved on, but during the month or so of second-guessing and soul-searching, he may well have come into the mental attitude that enables him to reach even greater heights than before.
The project with the Dregs guys, Neal's next album, or any future project, could blow us away and have us thinking "Holy shit, that's Portnoy?!" Someday people might look at the amazing career of Mike Portnoy and how he got his start with that progmetal band Drum Theatre or something, but once he left them, things really starting clicking.
Personally, I'd really be surprised if that happened, but I don't like absolutes. I really believe that people can change and that somebody, anybody, can put out an album that really surprises me, because it's happened a few times.
Oh yeah, did he make a mistake? No. A "mistake" is when you do something "wrong" and in music there is no right or wrong. There's the music you make today, the music you made in the past, and the music you will make in the future. He left DT. It was his choice. It may have been a hasty or not completely thought out decision, but it was his to make and he made it. As I said, for all we know, he could go on to make some astounding music that never would have happened if he'd stayed with DT.