'How far back KOTOR was?' Five years is not nearly enough to explain a reversal of that kind, unless - as the game does - you assume a scenario that goes way beyond the limits of plausibility. And the Sith's victory was not 'fast and inevitable', or Malak wouldn't have been bothered with trying to capture Bastila in the first place. KOTOR made it quite clear that the Star Forge was the only thing allowing the Sith to combat Bastila's Battle Meditation - we're even told that Malak is not nearly as good a strategist as Revan, and yet Revan still hadn't managed to defeat the Republic before Malak took over. What's more, at the end (the Light Side ending, that is), Admiral Dodonna talks about you having 'broken the spirit of the Sith'.
KOTOR 2 doesn't 'assume' anything; it deliberately allows you to choose how you think KOTOR ended (which alters a few events in the story, but the basic scenario is exactly the same whether you say Revan went Light Side or Dark Side). And it doesn't fit the Dark Side ending any better; if you chose that ending, the Republic shouldn't even exist five years later. If they wanted to make a sequel that left this ambiguous they should have set it a long time later, when the question of what happened in the original game can be more easily glossed over - there are 4000 years between KOTOR and the movies, after all. And for the record, while this is largely a matter of personal opinion, I do not agree that Revan going dark again would be 'cooler'.
The Republic was not 'broken and devastated' at the end of KOTOR, so how come this is the case five years later, when (assuming a LS ending) it should be well on the mend? And how the hell did these 'new Sith' manage to practically wipe out the Jedi when they started at such a major disadvantage? And how come they're only fighting the Jedi, when last time I checked the Jedi and the Republic were allied with each other? It hardly seems likely that they'd part ways just at the time when they need each other most desperately. "Hey, guys, the Jedi just saved our asses and got rid of Malak for us. Great, now let's allow them to be wiped out by the Sith, leaving us open to attack by anyone and everyone when we're at our most vulnerable!"
So how come we never saw or heard anything of these 'new Sith' in the original game? This is classic Lucas-style retroactive continuity, and I loathe it. What it comes down to is, the developers are too lazy to come up with a scenario that follows on logically from the first game, so they just pull all this stuff that was never mentioned before out of their arses and expect us to believe it was like that all along. It might be tolerable in a piece of speculative fan fiction, which IMO is exactly what this plot feels like, but it's not remotely acceptable in canon - at least not to me.
I didn't 'miss the point' of anything. I was already well aware of most of the points you made in your post; I just don't agree that they make for a plausible story, as I explained above. I'm not trying to discourage people from playing the game; I'm simply trying to explain why I don't want to play it.