Does budget affect writing? First half of S2 is pretty much widely panned for being awful. I don't know that a low budget is an excuse for bad writing.
Well, it does if you can't (wont' pay) for good writers. There was some point where all the writers got fired by Darabont, IIRC. I believe there were some conflicting reports about that situation.
The more I read about the behind the scenes happenings, it had to be an incredibly stressful time for everyone involved. I know it's part of the "business", but it certainly doesn't seem like a very creative atmosphere to me.
For the record, I don't consider the first half of S2 awful. It has some problems, but it wasn't awful.