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There was a lot to like storywise, but Craven was turning into a complete wimp by then. If you can sit through the DVD commentary, he admitted that his studio was worried about the meager gore/visual effects.
The studio, for once, was brighter than the artistic vision. There were only so many times you could put up with the following situation:
Character on screen
Claw moves
Character does something comical
Claw moves faster
Cut to next scene, where some unimportant character announces the death.
The death of Freddy looked absolutely awful, too.
Still, this is a flick that you need to watch after getting older. That's when it crawls under your skin. Craven had some nice touches in the story -- he just forgot to temper them with the full horror effect.