Personally, this comes as no surprise. When you fail to teach religion, or teach it in the context of multiculturalis, or fail to teach the fact that religion imposes real obligations, then you end up also teaching that it doesn't matter. And if being Jewish doesn't matter, then there is no impetus to bother remaining Jewish.
It's only in the Orthodox community where parents make a point of giving their children a thorough Jewish education (Jewish day schools typically teach 4 or more hours of religious instruction in addition to secular studies) and where religious obligations are taught and enforced. This doesn't guarantee that the kids will want to be that observant, but it does guarantee that they know all about their heritage and culture and what they will be discarding if they choose to leave.
But that having been said, I think some of the problem is also the fact that the orthodox community sets up massive barriers that prevent less-observant Jews from joining the community. The attitude there (not universal, but common) is that if you don't do everything 100% perfect, then you shouldn't belong to the community at all. And the definition of "100% perfect" gets stricter every year, for reasons that (to me, a non-orthodox Jew) don't seem to make any sense.
And woe unto someone who converts to Judaism. Not only do the orthodox not recognize non-orthodox conversions (which I understand), they also don't recognize many orthodox conversions. For a variety of reasons (including pressure from groups in Israel), the standards for orthodox conversion are much stricter now than they were even 20 years ago. In some places, fully-observant orthodox Jews who converted in the past are not considered Jewish for no reason other than the fact that the conversion happened before the new rules were set up.
With an atmosphere like this, it is quite understandable that those who are not orthodox are just throwing up their hands in disgust and saying "F!@(#& it all". If a non-Jew approached me today asking about conversion, I would tell him not to bother, and it would have nothing to do with Judaism itself, but everything to do with the associated politics. Why would anyone study for years and completely uproot his life, only to find that the community he is allegedly joining thinks it was all worthless and will forever treat him as an outsider? Or that at some point in the future, they will change the standards and make him start all over again?