Who knows what was happening internally, but on the surface: strong team of 5, $1-1.5m revenue their first year, tremendous reputation and another product in the pipeline. What more could you ask for to make a long term go of it?
I don't know about the Mac App store, but on the iPhone, their daily revenue was in a state of decline. There is SO much gravity in the app store. Stuff falls-- it's the natural state for almost all apps unless you have an ARPU or some marketing hack to counteract it.
I'm not saying they were in a crappy position-- though I'm not sure that a $2.99 / $9.99 email client is a good business bet for 5 engineers. Email is complex/weird and users will want support-- with a LTV of $2/$6, it's really hard to afford to support them well. You can't afford marketing. You're competing with $200k comp packages for your team.
$1-1.5m per year is a realistic estimate, IMO. Of course, if Google was offering the rumored $25M, taking a 25x payday is pretty hard to resist.
With the lump sum, you can do whatever you wanted to do, now. With the "annuity", you must continue earning the annuity each year, which significantly limits your options.