Why did my laser die?
Cost = Capability

Although there are many good suggestions above, it may simply be that this laser cannot handle the stresses you've applied to it.

Electrical Stress

Your direct connection between servo and laser results in the servo feedback into the power line propagating to your laser diode.

This is what the power rail looks like when a servo is commanded to move. Note the voltage brown-outs and positive and negative edge spikes. That can damage the laser diode if it isn't sufficiently protected.



Thermal Stress

This laser may simply not be designed to operate at the 100% duty-cycle you have applied to it. That is, it isn't designed to be able to dissipate the heat of continuous operation. 

Most 100% duty-cycle lasers employ substantial thermal management devices (such as large extruded heatsinks as seen here).