Yeah, I recall this being a narrative, but it doesn't make hat much sense to me. Sure he couldn't play 3B well, anymore at that point. However, his entire offensive profile fell apart, and as JA put it, the fall was sudden and dramatic. over 3 seasons.
I think more likely, Youk was a guy who overperformed his tools by a good bit. He clearly had at least 50-60 hit and power skills offensively during his peak, but I suspect that he maxed out the performance you could expect from those tools. He was never a huge bat speed guy, or a launch angle guy, etc. But he put up competitive at-bats at every stage of his amateur and professional career.
My guess is that his 2011 decline, in which he was still very good (he played 112 games at 3B, with a wRC+ of 126) was a product of his tools physical tools eroding with age and injuries. The total impact of the decline was masked a good bit by the fact that he was always an incredibly smart hitter. The next season saw yet another 20-point drop in wRC+, followed by yet another 20-point drop in his last season with the Yankees.
He was always seen as a guy who outplayed his physical tools. That only worked for so long, though and as he neared is mid 30's, no amount of skill at the plate was going to overcome the skill gap between himself and the rest of the league. Dude put up a career 127 wRC+ despite never being seen as athletic, or being described as having much potential. Just a remarkable career.