Re:
I also don't think average users cared about security issues back then.Recommendations in common publications to remove them unless absolutely necessary coincided with their market share slide, as I remember it.
Yes, Java applets was imperfect, but generally got better on every release. It was improving about as fast as JavaScript + DOM + CSS + HTML was.
Re: For most people, if the computer tells them they need to update, they update.
It didn't help them in that they tried to trick you into installing extra junk apps during the update process, like tool bars (AKA spam bars) and "free" anti-virus scanners.
Java had a big issue with applications that needed older versions, but the older versions often had security holes. Oracle didn't manage backward compatibility well. Trying to be a virtual OS instead of just an app platform contributed to the too-much-complexity-to-manage problem for Oracle. KISS.