For me Knightmare jumped the shark when the lifeforce became a pie with a slice or two taken out of it. The pulsating sequence of, was it serious 1-6?, which ended with a scary skull image at the end of a quest, was then watered down to the skeleton with bits falling off, and then just a photo of a pie.
The original 'face' life force was used from series 1 to 5, with additional use in series 6 as a death animation - the walking armour/skeleton one was used from series 6 to 7. I'm with you insofar as the pie was the worst one; in fact, it seemed superfluous. Food was, by this point, a hangover from the earlier series (and less important, since they were now using the knapsack for clue objects!); I very clearly remember not realising that the pie was a life force indicator and wondering exactly what it was!
Like so many others in this thread, I don't really think Knightmare jumped the shark at any point, but then I need to point out the fact that I watched the series in the wrong order.
I was two when Knightmare started and wouldn't have really started watching it until around series 4 or 5. I was still in primary school when series 8 ended (although I sent in an SAE anyway!) and, although I have fond memories of those times, I had never seen any of the earlier series. I did eventually catch series 1 to 4 on Sci-Fi (although they didn't indicate which series was being shown at the time, but I did see it all), and the closest thing I got to a 'shark-jumping' moment was realising the fact that at the beginning of the programme there was no Lord Fear! I'd just assumed he was always the Big Bad!
Now I'm much older and have seen every episode multiple times, in the correct order, there are clearly some moments where Knightmare changed noticeably, but I wouldn't say it jumped the shark:
(i) Outdoor Scenes
This was a staggering difference and probably the biggest switch in the whole run of all eight series: going outside. I remember Tim saying in a TES interview that "in some ways it was necessary to make those changes", which I kind of understand - there was a need to keep things fresh, and if series 4 had been exactly the same as series 3 it wouldn't be seen as innovative any more! Although I'm not fond of the purple tint, I don't mind the existence of outdoor scenes, but it wouldn't be until series 5 that I think they used them to their full potential.
(ii) Extra Equipment
This has always been a bone of contention, but I don't really mind the Eye Shield as an object. My biggest problem with series 1 to 3 was how slowly it moved - navigation out of a room once the team had dealt with whatever the room presented was repetitive and tedious - and the Eye Shield helped to move the quest along at a quicker pace. The passive paths may have been too long, but I understand the need to hurry the teams up a bit.
I also don't have any problems with the Reach wand aside from the fact that it was obviously a mouse pointer! With modern technology, that could have been done much better.
(iii) Dragon Flights
I haven't got a problem with this, either - how many people can genuinely say they've ridden on the back of a dragon?
(iv) CGI
Knightmare was innovative in a way that few other programmes ever were, and one of the ways it remained so was that it moved with the times. In some ways, Knightmare's CGI transition seemed seamless - a little in S4, more in S5, more in S6 and quite a lot in S7 - and the biggest jump happened in series 8, where everything was CGI and back in the dungeon (for the most part!).
But I think that, in many ways, although that was a noticeable shirt, it wasn't jarring - it was just the way things were going. A growing boy with my SNES on hand, I was noticing the improvements in graphical rendering (Donkey Kong Country came out in 1994 and looked fantastic), and Knightmare doing the same just seemed natural!
What might be an interesting thing to do is to watch the series in REVERSE order (8 7 6 5 4 3 2 1) and see if you are noticing the changes more or less obviously - or even if there is a shark jumping moment that way around!