TheWb was developing a new vampire show as a potential replacement for Angel at the time, Dark Shadows. That might have also played into them turning down Joss for a sixth season. Unfortunately though, the Dark Shadows pilot didn't turn out so great and it was never picked up. It's kind of interesting though that TheWB in general did the same mistake with Angel that they did with Buffy. They let two of their signature shows go over money concerns after their respective 5th seasons.
UPN didn't pick up Angel, because they had lost money on Buffy, since they could not launch a successful show after it and since they also wanted to get away from being known as the network that picks up other networks' shows.
I was surprised Angel wasn't saved. The fan campaigns were fairly big for a cancelled TV show. They had trucks with "Save Angel" on them driving through LA, the aforementioned Blood-Drives, they took out a fairly expensive ad in either Variety or The Hollywood Reporter (I don't remember the exact magazine). They went far above what the fans of Roswell did with the Tabasco bottles that they sent to the Wb.
The Angel TV movies never materialized, since Joss was busy with Serenity and his Wonder Woman script and because David Boreanaz was very adamant about not wanting to return for TV movies. In interviews back then, Boreanaz said that he would only return for a feature film. Honestly, by season five of Angel, Boreanaz was pretty much ready to move on to new things. I think he was probably relieved when it ended, because he didn't have to be responsible for people losing their jobs.
Also, I wouldn't say Sarah's character was trashed, I think that's a subjective opinion. Her character went through some dark developments, but I think she was still always written as a likeable protagonist. Also, Sarah didn't really clash with Joss as much, though she was unhappy with Buffy's dark journey in season six, because it felt so foreign to her and there was a short amount of time in which neither Joss nor Sarah felt appreciated enough by the other for what they had done for each other's careers. But both Sarah and Joss always remained professional throughout the run of the show. The way Joss treated Charisma Carpenter over on Angel is another story, but we don't know the whole story about that, even CC hinted that she may have been difficult and that she had been going through some major stuff at the time (though I still think Joss was an ass for handling the situation the way he did).
Also, Joss didn't spend as much time on set in the latter years of Buffy and Angel, because he had THREE shows on the air at the same time. Firefly was in development during season 6+3, Firefly was on during season 7+4, Serenity was in development during Angel season five. Of course he had less time available to handle all day-to-day-activities. That being said, he still did rewrites on all scripts.
IMO it wasn't out of line for Joss to say 'we did everything you wanted us to do so can you for once let us know early enough whether we be renewed or not'. But Joss is not without fault because February was way too early to approach the network and as I said, Whedon is not someone you send for negotiations.
Additionally, the ratings were up that year. It was kind of a no-brainer to renew the show. But in addition to having a potential Angel replacement in the works, the network felt Angel didn't do well enough in repeats to warrant a renewal, as repeats were still important.