Disagree with this. FA didn't water down the league, it simply equalized the talent from a few teams to many. It might have done away with the few powerhouse teams but it also made watching the majority of games a bit more exciting as they became more competitive across the board.
Expansion, on the other hand, watered down the league. Suddenly guys were were backups were starters and guys who weren't in the league were backups. That's the definition of watering down.
The biggest culprit in the quality of play declining is the practice rules that are in place now. Rules on how a defense can play (vs the pass in particular) and rules about live practices. Teams simply can't practice live drills as much anymore and we pay for it as fans. Granted, it does protect the players so there's a trade off.
As for the question, I'd say the last great team was the NE team that won back to back championships in 2004 and 2005. Regular season record of 28-4 over those two seasons combined with 6-0 in the playoffs and that is a dominant team. Those back to back championships also gave them 3 SB titles in 4 years.