I don't know anything about what went down later on, I quit after like a month which was when the server basically died. This was before Nihilum was even formed. At the time, the server was falling apart for three reasons:
1) Null's ridiculous custom resist system that nobody wanted
2) The devs had launched the server and then promptly left it to fend for itself, ignoring it completely
3) The VZTZ people (most of whom were in Holocaust at the time) were griefing to the absolute max, causing dozens of unguilded players to quit each day
They obviously weren't the only griefers, but they're the ones who make a deliberate goal out of getting as many people to quit as possible. Rampant training, camping of newbie zones, things like that. There's a distinctive group of people in that community (I lump VZTZ and P99 in with "that community") who get a kick out of being as vile and hostile as they possibly can, creating an unbearable environment both on the forums and in-game. There's room for them if the server is built in a way that they don't get to destroy it, but that wasn't the case on early R99 since the admins were pretty much ignoring everything but a few of the most notable exploits, and if they really do make T99 an itemloot server, this type of player will have an even easier time destroying that server.
The server will need to be somewhat enforced to prevent the more extreme forms of abuse (corpse camping newbies for entire days, training over and over, etc.) and also have a hardcoded design that encourages PvP instead of discouraging it. There's always gonna be people who fight dirty and that's not a problem in itself, but if the server is set up in a way that they're allowed free reign to do as much damage as possible with no safeguards against excessive griefing, so many players will quit that the server isn't sustainable. It's frankly silly to suggest that the server was ruined by Holocaust getting banned. Quite a lot of them should have been banned before they did, and even so, a server doesn't die because 5% of its playerbase gets banned.
Amusingly, the initial Holo crew would never really PvP, part of the reason I quit was that there simply wasn't any PvP unless you ran around alone and looked for 1v1s. They just fucked about in the most remote places, getting PLed by Cast and running at the first sign of trouble. I never managed to see a single IF vs. Holo fight in like three weeks and then I quit out of boredom when I saw that the server was dying already. People quitting the server was what killed it, not the banning of a group of players. It was dead before Nihilum was formed, they were a symptom of the server being DOA.