Adding a fee might have helped if they'd done it from the start, but it's too late now. Sticking with PPS but only paying out when a block was found also wouldn't help; Eligius tried that and as soon as they hit a long period of negative luck everyone stopped mining there and the pool had to be restarted with a different payout method, screwing everyone who'd mined there previously in the process. (That issue with Eligius's payout method was actually predicted well before it actually happened.)
> What if they only paid out when a block was found?
Then the miners would have no impetus to help them and would instead mine for themselves
I'm not sure this is true. For example, consider the following scenario at $200 USD per bitcoin: 5 people pooled mining capabilities, and mined a single bitcoin. They could then split that, and effectively pocket $40/ea (or 0.20 bitcoins each). If you mine solo, is it possible to mine a partial bitcoin, rather than increments of a whole bitcoin?
Right: mining produces whole bitcoins, and does it infrequently. That's why pools exist; people weren't willing to wait months to randomly win the bitcoin lottery. (Maybe that's a design flaw!)
Most pools pay proportions of their actual winnings, not their predicted ones.