Yes, performance of a battery declined over time, just as "battery health" declines on your phone today, for the same reasons. Mostly due to surface oxidation of the electrodes iirc.
Lithium-ion was never a good idea due to the fire hazard (in a crash they would just straight up explode, not even just cause a raging uncontrollable fire like LiPo, just boom) and Lithium-polymer could not support the necessary discharge rates (which I believe was also true of li-ion at the time too...). Early LiPo packs were only rated to like 0.5C or 1C peak discharge - this means, for a 2 amp-hour pack, 1C would be a discharge rate of 2 amps. Even then the packs did not really do well at their rated discharge rates - NiMH packs were far more tolerant of abuse in terms of discharge rates, in some cases you could push well beyond the rated spec and they would take it for a year or two's worth of sessions.
I was an "early adopter" on electric R/C airplanes back in the day (this would have been like 2000-2004) and the early stuff I used was mostly repurposed stuff from electric cars. The changeover to 4/5 or 2/3rds sub-C cells was a big deal at the time, the first "good" packs I owned were something called "HeCells" around 1800mAH or 2000 mAH, I also used KAN 1100mah cells. What I finally settled on at the time were these Sanyo "1950FAUP" cells which were extraordinary performers - we could push those cells to 70-80 amps peak discharge and they would take it. So in terms of the way LiPos are rated today[0], that is 40C discharge. This would only be doable for short periods, but it is necessary for launch and climbout (when the motor is running flat-out and the wing is basically stalled). Without the ability to sustain those currents it becomes very difficult to launch. Even still we did not "taxi" them like a normal airplane (or a normal model airplane), just wasn't enough power to get off the ground without a paved strip.
We typically expected about 10-15 minutes of flight time if you were flying normally, maybe 8-10 if you were really hotdogging it. So that means we averaged about 6C over the course of a flight (higher during climbout, less during cruising).
Another unsung miracle is how much motor technology has improved over the same period. My early motors were, again, repurposed brushed motors from Graupner's electric car lineup. We later moved onto some brushed Kyosho "magnetic mayhem" car motors that could push even higher levels of current. There was a Czech company called "Mega" who was an early mover on small neodymium brushless motors and that was a big deal at the time, they were far more powerful and far more efficient. Nowadays you don't even think about it, they're just a commodity, but at the time even a small brushless motor would run you about $130 or so!
[0] (tangent but it's kinda weird that NiCd and NiMH cells have traditionally been specced in amps but LiPo cells are specced in terms of "C discharge", obviously it's trivial to move between the two if you know the capacity of the pack but there's a definite difference in "style" of how the discharge rates are represented here...)