Hi Matthew,
specific gravity is, (very) simply speaking, a measure of how much sugar is in the water, compared to water without any in. Alcohol is less dense than water and therefore a reduction in alcohol could be reflected by an increase in specific gravity, BUT the change would be far smaller than a hydrometer could measure (i.e. much much smaller than the uncertainty already present in the hydrometer). No, it isn't strictly an alcohol killer as biochemical reactions are never that precise - for instance yeast turns sugar to ethanol and carbon dioxide, but also produces a host of other compounds in varying amounts (e.g. methanol, glycerol etc). The bacteria could affect the taste of the wine . I think that considering you have noticed the problem quickly, and taken steps to rectify it, you won't have any trouble. Perhaps though, it would be worthwile sampling the wine more regularly - it may mean the wine doesn't last as long.
Hope this is of some use, best of luck,
Just as an aside, I have just bottled a batch of plum wine (luckily I didn't have this problem), the taste was quite extraordinary - a full bodied / pinkish/red wine which reminded me a lot of tawny port. I can hardly wait to start opening it :-).
M.Baker