Quite the contrary. The other browsers did greatly improve their game. However, Google got spoiled with their ability to add a new feature to the browser whenever a Google product would benefit.

The cynical take on this is that Google just wanted to increase lock-in to its own browser; however, I think it's more a case that Chrome is a runtime environment for Google products as much as it is a web browser.

Hmm, if this is true, then we should be able to expect similar changes in Chrome like the changes made in Acrobat Reader when Adobe thought they had complete lock-in in the PDF reader space.

Yes they did. Firefox, Safari, IE all stepped up their game. Mozilla is building Servo. Microsoft is building project spartan. The browser is incredibly competitive.