The AT&T lawsuit may have been a factor, but I think a more plausible explanation is that the Linux ecosystem just moved faster by having short incremental release cycles, where FreeBSD only branched from -CURRENT every few years. So, you in FreeBSD-land you basically had to choose between something that is unstable or something that is old.
Another factor (I think) is that the Linux ecosystem marketed itself better. FreeBSD was a non-profit project (even though Walnut Creek supported them), Linux had a lot of commercial vendors (Red Hat, SUSE, Caldera) that were actively pushing boxes to book stores, etc.