This may seem a little far fetched but certain aspects of the wizarding world strike me as odd.
It is revealed that at the time of the fourth book the Minister of Magic was required to tell the Prime Minister that he was bringing a dangerous magical creature into the country (a dragon). Why would this rule exist? It doesn't sound like something the wizards would have made up. Their typical policy is to hide things from muggles. This sounds like a rule we would make.
Taking this a step further to the Ministry of Magic in general. Why is it called the Ministry of Magic? That doesn't sound like a name of a government. It sounds a lot more like the name of a department. They call the head of this government the Minister of Magic. People in the United States don't call the President the President of America and in Britain the Prime Minister is simply called the Prime Minister. Why is this distinction necessary when wizards don't even seem to know what type of government muggle nations have? Furthermore, no elections are every mentioned. Where did this government come from? From where does it drive its authority?
The most compelling piece of evidence is the fact that the wizards are generally lame now a days. Yes, Dumbledore is powerful but compared to the Peverells he is pretty weak. In fact much of his power came from one of their artifacts that now no one knows how to make. Even Nicholas Flamel could construct an artifact that no one was able to reproduce. The founders of Hogwarts and Merlin were powerful as well. What happened to the powerful wizards? Why do wizards not experiment with magic more?
One reason is that the ministry strictly regulates it. Wizards must register all spells, they must register as anamagi, and they even collect hide powerful artifacts like time turners (which by the way wizards can't make anymore). Another reason is a general culture of complacency and lethargy that seems to permeate the wizarding world. They are ignorant to muggle affairs and technology that may be to their benefit, they see no reason to advance magic or their rather antiquated culture. By and large they seem almost pacified.
My theory is that some time near the end of the middle ages the muggle trials were more successful than the wizards were led to believe. We found some way to defeat the most powerful of the wizards (by some magical means or perhaps from trickery or shear numbers). Muggles killed the most powerful of the wizards, destroyed magical knowledge, and created the Ministry of Magic to keep wizards in check. The entire government is actually a clever plan to make wizards believe they are doing this to themselves. After centuries of living under this bureaucracy its policies have become part of the very culture of magic. The wizarding community seems to be withering and I think this may be by clever design.