There is no defending MWO. The script was lousy and the whole thing was a commercial for American Idol. It was an embarrassment, and the poor reception not only killed all plans Disney had for the Muppets at the time, it also successfully killed "The Wonderful World of Disney." Yep. A decades long tradition died from a lame Wizard of Oz remake.
The only defense I ever hear if "it's true to the book." If that's the case, why bother making a Muppet Wizard of Oz when you can just make Wizard of Oz? There are those who didn't like MCC and MTI because the characters weren't playing themselves and using a pre-existing story. And I agree, that was a strange move and I prefer Muppet movies about the Muppets. But those films worked on the merits of strong scripts by Jerry Juhl. MWO was not only a step back in that direction after MFS and VMX, but the script was dark, cynical, UNMuppety, and overall trying desperately to do what worked in VMX and failing hard. This film didn't need to be made, and far better scripts that were tossed around after VMX. They were written in vain so a lackluster, overtold tale was made in its place.
In short, The Muppet Babies did a better Wizard of Oz in 5 minutes than the entire 80 minute film.