To keep a long story short... they were threatened by Intel's move towards GPCPU solutions where their CPUs were coming with GPU architecture; my laptop's core i5 processor has a graphics component. Plus Intel were talking about making a GPGPU (a GPU with some CPU handling campabilities).
So with the downwards spiral of PC gaming, Nvidia panicked a touch. They invested heavily in a GPGPU, codenamed Fermi, and that chip was delayed by nearly a year with Nvidia having nothing on the market and ATi selling their 5xxx cards like insane. Fermi finally came out a month ago (GTX 4 series), and was extremely power hungry (700 watts PSU required or something), and ran insanely hot. Plus the chip cost so much that Nvidia had to cut the profit margins of their partners.
This has resulted in companies like BFG left in strife.
XFX ditched Nvidia exclusivity and went to ATi when the first Fermi problems came to light.