Anon, rav avigdor miller used to say that that misconception lex people to be very confused about the Holocaust, because why would it happen if everyone was so frum?
Sadly the majority of klal yisroel were assimilated, and even in the yeshivos haskalah was wreaking havoc.. There were, of course, outstanding talmidei chachamim, and the level of learning was way beyond our grasp, but that was not representative of the klal