Carface, the Big Bad of All Dogs Go to Heaven, was legitimately menacing in the original film (it was his henchmen who were incompetent jokes). The scene where he and his gang threaten Itchy at Charlie's Club may indeed be Nightmare Fuel for some. However, in All Dogs Go to Heaven 2, he loses several IQ points, and becomes the idiot henchman. The Villain Song, 'It Feels So Good to Be Bad', sung by Satan to Carface, seems to be about reversing Villain Decay and going in the complete opposite direction, but nothing ever comes of it. Carface never really regains the menacing quality he had in the first film, and ends up being sent to Fire and Brimstone Hell because he made a really stupid Deal with the Devil. While this plot point seems to be retconned in the series, he seems to only get worse, ending up playing a Scrooge archetype in "An All Dogs Christmas Carol". This was a chain-smoking, gravel-voiced,Manipulative BastardBad Boss that waits until Charlie's wasted and rolls a car into Charlie that if he didn't die from the impact would drown, took everything Charlie had, manipulated an orphan for gambling tips, beat Itchy with a gang of Mooks within an inch of his life then almost killed Charlie again until he himself was eaten by King Gator. Essentially if you're a Don Bluth villain in a sequelized franchise, prepare to be decayed. The only way out of that is to never appear in the sequels at all, which many Bluth villains do not.
Sharpteeth in The Land Before Timesequels. The original Sharptooth was an unstoppable killer and a true force of nature who had seemingly supernatural stamina. As the series continued (and became progressively more kiddy), all the carnivorous dinosaurs in general have decayed to the point of no return. It got so bad in The Land Before Time TV series that Littlefoot and the other kids were able to chase off two raptor-like Sharpteeth and one Tyrannosaur just by throwing fruit at them. It's especially bad considering how Red Claw is constantly referred to as the "biggest, meanest, most scary Sharptooth ever". Yes, the Tyrannosaurus rex that runs from some fruit is supposed to be more big, bad and gruesome than the Tyrannosaurus rex who violently ended the life of Mama Longneck and terrified both the dino-kids and real kids.
Films — Live-Action
General Grievous in Star Wars. Viewers' first look at Grievous occurs during Star Wars: Clone Wars, in which the cyborg took on six Jedi at once and completely destroyed them without much effort, establishing him as an unstoppable killing machine. However, the series' production team developed the character independently from the films' team. For Grievous's live-action appearance, Lucas wrote him as a significantly lower threat. The live-action Obi-wan faces a significantly weaker Grievous and dispatches him fairly quickly all by himself. The second season of the animated series attempts to justify the discrepancy by revealing more of Grievous's evasive nature and showing how he received the injuries he displays in the live-action film.
And then there is Godzilla himself, who has suffered from this trope to an unbelievable degree, starting as a devastating monster representing the terrors of nuclear radiation, and was later portrayed as a child-friendly defender of the earth.
Aliens in the Alien series. The first installment was a horror film in space, with a single, nearly invincible alien stalking and killing the helpless crew of a spaceship, with numerous rape parallels. However, the sequel Aliens was an action film, where a swarm of xenomorphs overwhelm a squad of space marines by virtue of sheer numbers. Since then, xenomorphs have increasingly been depicted as cannon fodder. The merchandise has further stripped the Alien of its mystique and creepy sexual undertones. The Alien vs. Predator series further decayed the villainy by focusing on kaiju-style monster battles. Pop culture has also participated in the decay with increasingly parodic tie-in marketing in the form of plush, Lego, superdeformed, etc.
Freddy Krueger of A Nightmare on Elm Street. In the original film, he was the menacing personification of evil; over the course of the various films that followed he gradually became an increasingly camp wise-cracking court jester. This was reflected in his marketing — he cut an album of cheesy pop songs, guest-rapped on a hip-hop track about his antics, was rapped about in a different Will Smith track, and was subject to all kinds of tie-in merchandise including yo-yos. It took years and the return of Wes Craven (in Wes Craven's New Nightmare) to address and attempt to reverse his decay.
As a matter of fact, the opening of Freddy vs. Jason reminds the viewers that despite the bad jokes, Freddy Krueger is a man who murders little children for fun.
Megatron is the menacing Sealed Evil in a CanBig Bad of the first movie, destroying whole cities and causing the only on-screen casualty of the movie. By the sequel, he's just The Dragon to the realBig Bad, The Fallen, and more or less just argues with Starscream for the second half of the movie. In Dark of the Moon, he's injured for the entirety of the film, doesn't get a single kill, and gets defeated along with the Bigger Bad in a matter of seconds. Then Transformers: Age of Extinction comes around and the Not Quite Dead Megatron uploads his brain to a new body, regaining his menace in the process.
Starscream. He easily defeats two of the Autobots in the movie, but in Revenge of the Fallen, he spends most of the movie reduced to being a joke and does not fare well in the third film either.
The first time around in The Mummy Imhotep is a walking plague, causing fire to fall from the sky, hordes of locusts and rivers to run with blood. In The Mummy Returns, he's just some guy with telekinesis who trades banter with an eight-year-old.
The Agents in The Matrix may qualify on the surface. They went from being the scourge of the virtual world and the most dangerous entity that could be encountered, to suddenly being little more than cannon fodder in the two sequels. However, while Neo has little problem dealing with them once he becomes the One, they are still a quite significant threat to everyone else.
In the first Jurassic Park movie, the T-Rex is an unstoppable monster, who can't be fought and only run from. He takes on the other villains of the piece in the final scene and kills them with ease. His face is the symbol of the franchise. In the second film, more of the same, only with a much higher body count. Third film? Hit by The Worf Effect: Killed unceremoniously by a dinosaur most dinosaur experts say he should have been able to take apart with ease, even being replaced on the franchise symbol. Villain decay indeed.
The first bug we see in action in Starship Troopers withstands the combined fire of four mobile infantry before going down. Later on bugs are seen taken down by just a few rounds. Justified by in-universe research into how best to direct rifle fire; we even see a clip of a training film.
Sollozzo:All due respect, the Don, rest in peace, was slippin'. Ten years ago could I have gotten to him?
The Djinn of Wishmaster was scary and so much of a threat in the first film because he was utterly evil beyond redemption, completely immortal, his powers knew almost no bounds, and he would bring about hell on Earth if he got his three wishes. What stopped him from being an Invincible Villain was that the entire plan hinges on granting wishes, so the protagonist could technically stop it by not wishing at all and had to be constantly wary of saying anything that could possibly be interpreted by the evil Djinn as one. In the second film, he suddenly has to collect 1000 souls first, and much of the plot placed him in prison, where he was significantly less menacing as a villain. The third and fourth films continue the process by making the Djinn killable, and having to pursue romance with a woman.