That's sounds pretty normal. I just tried running down my Jet-I IBS on NiMH for you, and noticed max output started to dim as I approached ~1.2V. Note that at this resting voltage (when I first saw a noticeable dip), my ZTS battery tester read zero capacity for the cell.Because i find that on my Jet-I IBS rated for (0.7-4.2V) that 100% becomes noticeably dimmer by 1.3V and by 1.2V all modes on my light are about as low as the minimum 5% low and by 1.1V even the 5% low instantly dims down when you turn on the light.
I gave it a few more mins, while it dimmed rapidly, and pretty soon output wasn't much higher ~5-10% of max (where I normally stop my runs). At this point, my DMM read 1.18V, and my Maha C9000 read the cell as completely discharged.
So your experience sounds fairly typical - there doesn't seem to be a lot juice left in NiMH by 1.2V.