This episode, like few others, is strongly influenced by how the plot was ultimately developed.
At the time, when it came out, it upped the ante and solidly established Rydell's credentials as an evil, Blackgaard-esque villain. It sounds funny to say that people didn't mind Emily and Matthew being locked in an escape room and threatened, but I think it's true that people didn't mind it as a plot, if they knew that it was only another evil scheme that happened to the protagonists, with nobody but the main villain to blame, and that justice would ultimately be done.
If the plot turned out the way fans expected - Emily (perhaps with actual help from Whit) cracks the case and Rydell is held accountable for his crimes - I expect the focus here would be on Emily and Matthew's relationship, and it would be as memorable an episode as "The Battle" or some other classic, for similar reasons.
It's still memorable, but in the opposite way: now the focus is on the facts that 1) Morrie did something very wrong ("demented", to use Whit's own words in this episode), 2) Whit did absolutely nothing to stop it, while pretending he was clueless for weeks on end, before and after, and 3) people would rather gaslight Em than acknowledge that Morrie did wrong. Later episodes, especially Rydell Revelations Part 2 and 3, get most of the blame for those things. However, this episode still has a role in this fiasco, because up until this episode, Morrie hadn't yet done anything quite so bad that we couldn't conceivably imagine him getting off with an apology.
If you could look at this episode from when it was the latest episode in the ongoing Rydell saga, I suspect it'd rate a 5. If you look at it after knowing what happens in Rydell Revelations, Parts 2, and especially 3, it's not hard to understand why someone would feel the rating should be the opposite. I'm inclined to keep the rating I had for it when I first heard it, on the technical grounds that the saga wasn't ruined until later, but the writers have well-earned decisively negative feedback.