Ah, I love The Happiness Patrol! I think, with both sets and costumes, they are both deliberately fake (the painted smile, I think was a reference, all the apinted bright candy colours painted over a crumbling society, literally and metaphorically). I can't decide, though, whether it was a good move, given how much it can look just like the usual BBC 1980s fake sets! I've been watching so much old TV these last few years, and it is interesting, in the different ways in which it is and isn't theatrical, and last time I rewatched HP, it struck me that it's quite agressively theatrical, maybe more so than any other DW story before or since.

But, it is still so relevant and angry and the script never lets up. I understand why people can't stand it, of course, and I would criticise it for some of the same things you mention - but at the same time, I love it to pieces. The last five minutes of it was the first bit of Doctor Who 11 year old me saw. It mystified me, but it struck me, especially the confrontation between Seven and Helen A - and that was absolutely the moment I fell for the show and the Doctor, even though the only format I got to see THP in for years was the novelisation. But somehow, Seven championing sadness and love was what did it for me. :-)

(So, my views on THP are never unbiased.)