I recently restructured and resubmitted the sitemap for a website of mine in GWT. The old one was built by a script I acquired, which had its flaws but dit the job. After having implemented URL rewriting, I decided to write my own sitemap generator, in order to have a solution which perfectly fits my requirements and provides much better and accurate info than the old one. The integration went well, GWT displayed the green tickmark and the correct number of URLs. Around the time I have submitted the new sitemap however, I noticed a big drop in visits to the site. Is that normal behavior when one makes an important change to a sitemap, or is it pure coincidence and I need to look for the reason for declining visits elsewhere ?
It shouldn't have any effect on your pages' rankings. After all, its purpose is to tell the search engines what pages you would like to have indexed and where to find them. It has nothing to do with relevancy. But you see things like the Sitemap Paradox and realize it is far from a perfect system.
Having said that, the odds are it isn't your sitemap that caused any problems. Your drop in rankings seems to coincide with the "Panda" update Google has recently run. If your content is very similar to or exactly the same as content on other sites it probably has been devalued by Google. If this isn't the case it can be difficult to tell why they dropped as there are so many factors in ranking pages that narrowing it down to one thing is very difficult. It's even possible that your competitors just got better and you stayed the same.
If your results do not change soon I would recommend switching back to the old script and see if your rankings revert to their previous place. If they do then you know the sitemap is to blame.
Based on this "After having implemented URL rewriting" It sounds like you changed your URLs? I'd guess that had a bigger impact, especially if the old URLs return a 404.