The forums recently had an appointment of many new staff members, as you can see here
. Now, I'm certainly not in on most of the inner machinations of the forum. However, if I were to speculate, I'd guess that your inactivity would in fact be the reason for your demotion. Sure, you gave a perfectly justified reason for it, but you were inactive nonetheless and as a member of staff that is no good.
As for why you might feel as though you may have seen singled out, it's possible that another member or staff or some other active member offered their suggestions to the higher-ups as to which staff members they perceive to be noncontributive to the forums and should therefore be demoted. I've spied certain members giving tips to other certain members...sneaky sneaks....
But this is all an educated guess, so I'm not speaking on anybody's behalf! Another educated guess I have is that when your aforementioned situation gets sorted out and you are able to be active again, you should have no problem re-applying for your staff position!
As for other staff you feel aren't up to par, you should probably bring that up with Sarah!