Have you used "Fertch as Google Bot" in webmaster tools to find out which pages are causing the 404 errors, that would be my first step.
Is it the server response causing the 404, or is it people with fat fingers requesting a URL which doesn't exist ?
As for the traffic drop, you would have to investigate a lot further, where do you get your main visits from, if it's from the UK remember the schools have been on holidays the past couple of weeks, that could have an effect on traffic, Mums have to look after Children a lot more.
Just idea's to think about.
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