Why does the number of threats stopped go down?

"On TrendMicro, the list of "Threats stopped" in the past month sometimes goes down rather than up, sometimes by a huge amount in one day. Could this signify a threat that was previously thought to have been stopped but now isn't? Why would it do this?"

This is the normal procedure of this product. It consumes lots of cpu potential and slows down the process. you may use Trend Micro Smart Protection Network for better performance. Also it depends on RAM/Process speed/network bandwidth etc. you may link here to clear the concept, specially on TroubleShoot Chapter

What's the suitable protection level for internet-connected desktop?

I would include an antivirus (which nowadays usually includes an anti-spyware and sometimes an intrusion prevention component), an additional anti-spyware, a software firewall, and a well patched OS.
As far my knowledge first of all Hardening the OS, then properly configure the system (background services and so on) and now search for good Internet Service Provider. Of-course when the matter of Internet there are obviously the question about “Good Anti-Virus and tight Firewall Security”…. Though it is necessary to aware about the below mentioned points also:

1. Restrict internet access.
2. Password protect internet access.
3. Block internet web sites. (any unnecessary sites, or the site which make harmful)
4. Allow one or more web sites while blocking all others.
5. Prevent any user accounts from accessing internet.
6. Schedule internet access for any or all programs.
7. Any internet program can be protected, i.e IE, Firefox, Google Chrome, Outlook, FTP programs, Messengers etc.

Remember that, it is necessary to update regular virus patch and other related software also. And needless to say that, always update myself for security related threats, new virus, and new method of hacking etc….