In the definition of what a division is in the NCAA, it is stepping up. It has nothing to do with the actual competition level. But the D2 schools can offer scholarships according to NCAA by-laws, where D3 schools cannot. If St. A's is going to play for a conference championship, they have to step up from D3 to D2. Again, the competition level is stepping down, but you can't step down from D3 to D2.
As for the argument that most of the schools are D1 or D2 schools that played down and didn't compete well, Niagara, Canisius, Robert Morris, and Holy Cross have been D1 their entire history, with Niagara and RMU coming from the once-powerful CHA that collapsed at the end of its history when it only had four teams. Mercyhurst had had success at all levels of hockey, most recently at the D1 level where they've almost always been a factor since chartering the old MAAC. And Canisius has actually been a better program at D1 than they were at D3. I will agree that AIC and Bentley have had marginal success at the D1 level, but even now they're becoming factors (AIC beat Quinnipiac last year, and Bentley destroyed Northeastern). So while the public perception of Atlantic Hockey is one that has struggled over the years or had problems at the D3 level, it's becoming a much bigger factor on the D1 level. in the 10 years since the split with the MAAC, the league has gone from doormat to major player and factor.
And this doesn't evne include the fact that RIT has never struggled pretty much ever.