By the way, the evaluations of students who cheated were not counted, which mitigates things a little.
EDIT: "Moreover, the course evaluation input of any student who has an honor code infraction is removed from consideration when evaluating teaching performance." -- http://chronicle.com/blogs/wiredcampus/nyu-prof-vows-never-t...
From his original blog post he mentioned that he did not refer all his students to the university's "honor council". He even gave the student who copy/pasted another student's work a chance to redo the paper without referring it to the administration.
It's a very reasonable thing for him to do given the consequences of being referred to the honor council. Having cheating on your college transcript is a scarlet letter if you're thinking about graduate school. You get an 'F' in the course and will not be granted admission to any medical, law, dentistry, or pharmacy school. The consequences are disproportionately severe given how pervasive cheating is.
However, I still agree with Panos' diagnosis that his student evaluations went down in response to detecting cheating. He presumably has data from hundreds of students over years of classes. The primary difference between this year and past years was almost certainly his detection of cheaters. While removing cheaters from the evaluation pool may mitigate the problem a little, I find it pretty plausible that evaluations went down because of some cheating-detection related phenomenon, like the more adversarial atmosphere, his own feelings about the cheaters, or students feeling attacked or accused.