I think it's clear that Allen was fired for the same reason most coaches are fired, he couldn't overcome adversity which in this case was injuries. But, you are right that he proved long ago that he should not have the job. I think it all started when Winston lost his job due to injury and it snowballed from there. Frankly, I think the fact that he has known and been friends with Loomis so long is the only reason he made it to this season.
It also seems clear that Loomis had no intention of firing DA during the season and was going to give him the full season to see if he could turn it around. I do think he would have fired him at the end of the season, but luckily Gayle Benson stepped in and ended our misery early.
But, it does really make me question Loomis' decision making. I'm not sure how you watch Payton for all those years and can't tell when a head coach just isn't getting the job done. Maybe it's because he was too close to DA to objectively evaluate him? Whatever the reason, he either needs to get over his personal attachments or he needs to be moved out of the GM job.