Were the monasteries as bad as claimed by the government and Henry VIII's commissioners, or were they saying that to justify a policy they had already decided upon?
Ahhh! A question I can answer! I spent about two or so years studying the Henrican era, generally focussing on The Reformation. Though it's been a while since I really dug deep into the period, particularly the dissolution of the monasteries, I can certainly give you a good idea of the state of the monasteries throughout the late medieval era and into Henry VIIIs reign. Your second question really delves into the Reformation as a whole and the politics behind the actions of Henry VIII and his government, which is a subject that many Historians have written and argued on for the last 100 years or so. At this point it would be unrealistic to completely break down the reasons for the dissolution and the wider removal of traditional practices from the Church of England, and whether the commissioners, Henry himself, and his council truly believed the monasteries were in such a poor state that they deserved dissolving. For this reason, I'll mainly focus just on the state of the monasteries per your main question, but keep in mind that this was an era of Religious contention in Europe that is almost unrivalled through the last millennium. The Privy Council behind Henry that guided most of his policies was constantly swinging back and forth between strong radical and conservative control, and the dissolution of the monasteries was generally considered a radical move fuelled by Cromwell and his various allies in court.
As for the state of the monasteries themselves, different Historians will give you a different story. Throughout my study of the state of the monasteries, I found the arguments for it's good health much more convincing, but there were still lapses in the establishment's virtue. In the late medieval era (c. 1400 - 1517) , before Henry VIII ascended to the throne, the monasteries were in good shape. One of the best indications of the Church’s health is demonstrated in its recruitment records. Between 1410 and 1517, monks were increasingly recruited in England. At Carlisle for instance, there were 16 monks in 1379. This rose to 20 by 1438, and rose again to 23 by 1540. At Romsey Abbey, there were 18 nuns in 1478, and 40 by 1521. At Durham there were 59 monks in 1483, rising to 74 by 1530, indicating a steady growth through the fifteenth century. Such growth is pretty emblematic of a sturdy and robust institution - by 1509 there existed 850 running monasteries, holding a total of 10,000 monks and friars, and 2,000 nuns. Most of these monasteries had enough money to run smoothly, averaged at £200 p.a., and many were much richer and more capable to help local communities, such as in Bury St. Edmunds where net income came to a staggering £1660 in Valor Ecclesiasticus. Such wealth demonstrates the health of these institutions via their popularity.
It's also quite clear that most members of religious houses were appropriate and took their duties seriously. In the dioceses of Lincoln, with 111 religious houses, there were only a handful of members who were reported disorderly between 1400 and 1530. The late fifteenth century visitations of the Premonstratensian Order resulted in very few cases of decadence. In Westminster, by 1500 new recruits were required to show literacy and ability to sing, as well as having to show knowledge of religious scripture and undergo probation months before being accepted. Other studies of the behaviour of monks in the dioceses of Lincoln and Norwich before the turn of the century also found that most did their duties of good works, charity, and prayer effectively. The only cases of disobedience from these visitations were minor, such as the abbot of St. Marys, York, who was charged with sartorial magnificence, or the canons of Warter Priory who were found to have worn "silken girdles". Similarly, the monks of Norwich owned red purses and bows on their shoes, glamour that was frowned upon at the time. Yet these examples only exist in small numbers, and are mainly anecdotal.
You're not wrong to bring up the issue of fake relics. Many monasteries across the countries effectively "sold" themselves as a pilgrimage sight in order to bring in money. The Cluniac priory of Bronholm on the Norfolk coast claimed to possess a piece of the True Cross, mentioned in a both Chaucer’s Canterbury Tales and William Langland’s Piers Plowman. The Cistercian abbey of Hailes in Gloucestershire was home to a phial of Jesus’ blood spilled at the crucifixion. Donated in 1270 the blood made Hailes an important pilgrimage centre, generating an income the proceeds from which enabled rebuilding on a magnificent scale. The fact of the matter is that by 1540, one of the main contentions between radicals and conservatives was the widespread existence of such "relics". It's a personal matter whether you choose to believe such items were truly what they were advertised as, but these fake relics weren't really an issue of corruption. Pilgrims enjoyed travelling the country to see miracles, and monasteries and priories used the money gained to reinvest in local communities and their Churches, helping sustain a healthy religious institution. In short, yes, many fake relics and miracles could be found in monasteries through England. Whether this is an indication of corruption is too subjective to force a conclusion on. It's most likely the monks and abbots advertising these relics believed them to be real too, and the importance of such relics to late medieval Christianity was as fundamental as any other practical methods of worship. Monasteries that housed such "superstitious" practices as they would later be deemed were indeed focussed on in the dissolution for dogmatic reasons. In the year before the dissolution of the larger monasteries, the nationally important Boxley Rood of Grace was dismantled, denounced on market day at Maidstone and taken to London to be destroyed. Such deliberate ridiculing also included the revelation that the Hailes blood belonged not to Christ but to a duck. Monasteries with any relics were often targeted and closed first by commissioners.
This is a fantastic answer, thank you. I was recently reading a biography of Cromwell (a fascinating man, btw). I was surprised to learn that Cardinal Wolsey had actually begun dissolving monasteries and that’s where Cromwell cut his teeth on it, as it were. It seemed Wolsey was most concerned with those monasteries that were doing nothing for their communities and who were not abiding by monastic rules. The impression that I had was that the dissolution of monasteries needed a scalpel, not the hammer it later became.