What happened in May 2007?
I am sure the issue was the community's response to the media coverage, rather than the media coverage itself.
I do not believe that the media coverage in late 2006 and 2007 did any serious damage to how Wikipedia was viewed by the public. This is for two reasons: - prior to 2006 Wikipedia did not have a reputation for reliability, so news about its unreliability wasn't really news - growth in Wikipedia readership has continued to increase massively, not what you would expect from a damaged brand - none of the "competitors" to Wikipedia have gained a significant number of editors compared to us.
My explanation for the dropoff in new editors in 2007 would be that at that stage, the low-hanging fruit had been eaten. Prior to then, editing Wikipedia tended to mean adding facts from your general knowledge. Since then, Wikipedia has tended to be at a higher level than peoples' general knowledge and we focused on citations and verifiability. This was the right thing for the project, but it came at a cost.
I would quite concur that the community has since become less welcoming to newcomers. There are technical steps that can be (and have been) taken to protect the integrity of the encyclopedia and I for one am glad that we don't let random people insert images of penises into widely-used templates any more. However the social trend in the community has, in my experience, been to bite newbies more and more. Very few of the technical changes that have done anything to help new users.
In consequence I am concerned that we are failing to reach the people who we now need - people with patience, willingness to educate themselves in order to improve our articles, people with useful references close at hand. They are not necessarily ready to leap into an unfamiliar interface and are very unlikely to respond well to a hostile response to their first edits... we need to change that.