Mike mellowed just as he hardened; he realized one of his own worst fears - he lost his family. I'd guess he let Kay back into their kids' lives a few years after Part II ended, and I'd also guess that the guilt of his part in Fredo's death played a part in this.
Of course it can also be explained that the change was due to Part III coming out and they needed a new storyline, but that'd be a smartass assertion.
