It seems that nobles were more powerful in the earlier middle ages. Was this due to the fact that there were less people in general, as well as less people claiming 'noble lineage'?
If every noble had 3 or 4 children each generation, did each generation become less wealthy and was it possible for them to lose all privileges and rank/status as a result of this over time?
No. As notions of the state, monarchy, and absolutism solidified the role of a "Landed Warrior Class" was naturally reduced. This thread gives a particularly good overview, although I'm sure more people can contribute.