In the 1990s the preferred umbrella term used by and about people who weren't in alignment with their birth gender was "transgendered."
Observe that your first claim is not supported by available textual evidence from a source you later cite yourself: Google books Ngram Viewer. The ngram comparing the frequency of occurrence of 'transgender' and 'transgendered' shows that, throughout the 1990s, 'transgender' is the more common term. Perhaps you have another reason than frequency of occurrence in published books and articles (that is, those published books and articles that are represented in Google books data) to think that 'transgendered' was "preferred" in the 1990s?
Additionally, the summary history of the term 'transgender' (adj.) glossed in the OED via quotations, indicates that 'transgender' was in use nearly a full decade (9 years) earlier than 'transgendered' (adj.). The historical difference between the first recorded uses of these terms as nouns is not as great, but 'transgender' (n.) nonetheless appears a full 5 years earlier than 'transgendered' (n.).
Assuming, however, that you had another and sound reason for your initial claim, I examined the remainder of your claims in the interest of answering your question accurately and completely.
Despite the fact this [the term 'transgendered'] was grammatically correct ....
Quite so: I am unable to find any supportable evidence indicating 'transgendered' is in any way grammatically incorrect. Additionally, the word is well-formed.
... and [the term 'transgendered'] didn't have any negative connotations ....
Not quite so: At least some and quite possibly many people associate 'transgendered' with past tense completed verbs marked by '-ed'. Additionally, the association includes a sense of passivity, that is, that the transgender action has been done to the transgender person. These associations are connotations, and whether they are right or wrong associations is not pertinent. A representative example:
Moving away from the “ed”—which sounds like a past-tense, completed verb that marks a distinct time before and a time after— helps move away from some common misconceptions about what it means to be transgender.
("Why It’s Best to Avoid the Word ‘Transgendered’", in TIME, Dec. 15, 2014)
Another representative example, from the blog post by Pauline Parks I cite later:
... the most frequent objection I hear to ['transgendered'] is that it seems to imply that something has been ‘done to’ the ‘transgendered’ person
Now, about your next claim, which is that
... it was decided by somebody somewhere along the line to drop the "-ed" and tell people the old word was "wrong."
I don't think this claim is verifiable, one way or another. My own opinion is that, if such a decision was made at all, it was not a decision made by one person acting unilaterally, but by several or many people acting both independently and in line with common interests.
About your second paragraph, it should suffice to point out that neither 'transgender' nor 'transgendered' are compound words. The textual record does show that both have been used as both nouns and adjectives. 'Transgender' derives from 'gender' with a 'trans-' prefix, and 'transgendered' is the same with an additional '-ed' suffix, a common adjectival formulation. As far as I am able to tell, both words are legitimate (correct).
The terms do have slightly different meanings and uses, as is capably enough pointed out by Pauline Parks in GLAAD is wrong on 'transgender' vs. 'transgendered', a blog post that originally appeared in 2007. In that post, she says this:
Now, I do use ‘transgender’ as an adjective to describe certain entities that are abstract, such as ‘transgender law,’ ‘transgender studies,’ and ‘transgender community,’ because it is the people — not the law, the studies, or the community — that are transgendered. ....
Unfortunately, her post is marred by the apparently erroneous suggestion that the adjective 'transgendered' derives from a verb:
Adding an ‘ed’ to a verb to create an adjective is in fact a very common construction in English, and the fact that an adjective is created from a verb doesn’t mean that it isn’t an adjective. Similarly with ‘transgendered.’ When we talk about people, we ordinarily say that they are ‘gendered,’ using an adjective created by adding ‘ed’ to ‘gender.’ ....
Historical evidence presented in the OED suggests, however, that 'transgendered' derives from the noun 'gender' formulated as an adjective by the addition of the '-ed' suffix. About the '-ed' suffix, the OED has this to say: "The suffix is now added without restriction to any n. from which it is desired to form an adj. with the sense ‘possessing, provided with, characterized by’ (something)". The verb 'gender', meaning "To assign or attribute a gender to; to divide, classify, or differentiate on the basis of gender" is described as "rare before mid 20th cent.".
Despite what appears to be a fundamental error about the derivation of the term, Park has a great deal worthwhile to say on the controversy in general.
In summary, and acknowledging that your question concerned primarily "the history behind the change and divergence in usage of the words", the textual data available to me from Google books Ngrams and the OED suggests that the historical timeline you've adopted as gospel is not, in fact, accurate. I should mention in closing, however, that your impression of that history is supported, for example, by anecdotal second- and third-hand accounts such as the following from the previously cited article in TIME, dated Dec. 15, 2014:
Julia Serano, author of Whipping Girl: A Transsexual Woman on Sexism and the Scapegoating of Femininity, says that older transgender people might prefer and use transgendered when speaking about themselves; in the 90s she recalls that term being de rigueur among trans activists.