I don't think it was a single thing that caused the collapse of N7. But rather, a combination of factors all came together at the right time.
First was their fleet. IMO, the choice of being a low fare airline AND flying a large aircraft type such as the 757 was a tactical error. I don't have the numbers here, but I would think that their break even load factor had to have been pretty high. Especially with all of the short flights to LAX and SFO. IMO, they should've gone with 737-300s or -700/-800's, or even A320's. They are smaller yet still have transcon ability. They wouldn't have needed as many pax.
Also, even though their planes were of the same type, they came from all over the place and I don't think that more than two of their planes had thesame configuration.
Second, as you noted, they started up in a market that was already saturated (although to be fair, most of HP's service is/was flights that flew with equipment that would've otherwise been parked-between 2100-0300 hours). Their choice of Las Vegas as a hub for a "national" airline looked good on paper. But with all of the low fares already going in there and the charter traffic, that end of the market was alreday full. All of the full service Majors were aledy running diluted yields in and out of there. Why would Mr Conway have thought we needed another? Indeed, there are alrday nonstop lowfare flights from Vegas to just about every major city in the country.
Third, was their marketing. They never seemed to have much direction or vision. Indeed few people I asked had ever even heard of them. On one hand, they touted themselves as "the low fare Las Vegas' Hometown Airline". Other times, I got the impression that they were just "there", and nothing was all that special about them. Fourth was September 11, 2001. 'Nuff said.
Fourth, which sort of summarizes all of the above: poor and sloppy management.