Long story short, Marvel, spearheaded by Avengers editor Mark Gruenwald, who was then writing the Captain America book, wanted Cap back as the Avengers head-honcho. To do so, recently elected leader Captain Marvel, a character created by Stern and whom he had been building up right from the beggining, had to be shown to be a crappy leader, so that the greatest Avengers leader ever would be forced to step in. Stern still had many plans for Monica and felt that this direction would not be true to the character, so he refused to do it and was let go. Gruenwald then brought in Walt Simonson to do the demoting of Captain Marvel, and, honestly, I think he did a decent job in not ruining too much the character while doing it. Simonson also left a few issues later due to editorial interfearence (basically, they went back on letting him use Reed and Sue Richards on his new team shortly after he already had set thing in motion to introduce them).
Peace