Rugby has always been reasonably strong in the more established government schools in Sydney, say those east of a vertical line going through Parramatta. The great unwashed west of this line play league almost exclusively. And the systemic Catholic schools have always played league. The recent poor behaviour by some league role models has put this fertile ground at risk as some of the Catholic hierarchy have taken offence and don't want their charges to be involved in such a sport; St Greg's Campbelltown, for instance, entered a formal rugby competition in the ISA in 2009. The independent Catholic schools have always played rugby.
The one bright area for rugby in New South Wales is the country: league is in deep trouble with many schools, government and Catholic and non-Catholic independent schools having a go at rugby the last few years, many for the first time. I check the fine print in the sports results of most of the daily papers (well, the rugby results) and I'm amazed how many country secondary schools now play rugby. Two examples: my home town of Wagga Wagga (aka the sporting capital of the western world) has three government high schools and one independent (which is Anglican) and two systemic Catholic schools. League used to be very strong in Wagga, in fact the only football code played some 20 years ago, but no high school now plays league; they all play rugby and/or AFL and some soccer. The other example is Newcastle, a stronghold for league. But the government high schools and some of the systemic Catholic schools now enter a rugby team or two in some of the short district competitions. They would never have done this even ten years ago. Another one which astounded me was Red Bend Catholic College at Forbes, a very successful league school which produced Chris Anderson, among others; they now play rugby as well as league.
If the Australian and/or the New South Wales Rugby Unions could help this momentum rugby wouldn't have any problems in this state.