They did had a good level before, but they were on a rump recently so we shouldn't be expecting it to change and they need to make some changes. They had all these good players and yet still had a bad period in the recent years, which is why they ended up getting Ancelotti to begin with. Does that mean they will stay bad? Of course not, they can do better but they need to realize they need to play better.
Let us hope that Ancelotti will make the changes. Like you said they had all these player in few years ago, and couldn't do anything. It could be that they need a change in coaching, and a few other players too. Most time having the best squad doesn't guarantee a trophies. Portugal won against Spain even with their squad, Chelsea won PSG too. When we look how most matches turns out, it becomes more obvious how unpredictable football can be. The teams we expect the least often gives the most.