Yeah, the best players in the world generally play in Spain and others for Bayern, but this is so much more than that. The horrific thing in Europe is that it's not as if the English sides do well and only lose to Real, Barca and Bayern. United could be going to out Wolfsburg and PSV, Arsenal to Olympiakos and Chelsea have a decisive match with Porto while Dynamo Kiev are almost certain to qualify. Who put the ball in the English net? Half fecking Europe. It's like regression to the early 90s, after the English sides returned from the ban. And I really don't know why.
I think part of it is that teams, particularly the ones competing to win the league, rely on competition from each other to push up their standards. You only have to be better than your rivals to get what you want, so if your rivals are goood you aspire to be better, if your rivals are bad you just have to be less bad...and at the top of the league at least, there just hasn't been anyone really pushing the standards up for a while now.
For example you had the Arsenal Invincibles who raised the bar for anyone who wanted to win the league, so then from that came Mourinho's Chelsea, which meant Fergie and United had to raise their standards a fair bit to compete, and then you had the United side of 2007-2009, so the other teams again had to raise their game just to keep up...you had a while where you had to be really fecking good just to be a top 4 team. After that though it just kind of lulled a bit for a few years, which was bound to happen...but from that you had us winning at a canter, and then instead of someone else having to step up to catch us, Fergie retired and we turned really crap, so there was nothing to raise the bar against...and there hasn't been really since. Last season Chelsea won at a stroll which you think might have pushed other teams to sort themselves out, but then this season Chelsea have done a Moyes as well...which means there really is no set standard.
Sort of like if you're in a race and there's one or two guys ahead who are that bit faster, you'd think "I can catch them" and find a way to make yourself faster, by training harder or working harder on something. If you're in a race and everyone else trips over their own feet or ends up half a mile behind you, you'd probably just go home and have a pizza and not worry about it.
I don't think the middle or lower part of the league has necesserily changed that much. You still have good football teams like Everton, Spurs, etc...or surprise teams like Leicester. There's not really been a time when these teams wouldn't struggle against their European counterparts...occasionally one does well in the Europa League but I can't remember there being a point where the not so giant European teams weren't generally a lot stronger than people in England ever seem to give them credit for.