Putting aside the usual inane comments about how nobody cares and this isn't important etc, absolutely nobody wins by losing another attraction in MK...not even DVC members.
MK is the world's most attended park, yet has a shocking number of empty buildings that were once attractions, restaurants or shops. The park is desperately in need of bringing back that capacity and then some, and having the kinds of experiences you can do without reservations or long waits.
We can debate the merits of the arcade (and yes, it does have them), but diminishing the variety of experiences people can have in the park lessens it as a whole. Nobody visits just for the Treehouse, or Carousel of Progress, but reducing the park to headliner rides and meet n greets turns it into a place like DHS were everyone scrambles to do the same things and is miserable in trying to do so.
Disneyland Paris has not only its own version of this arcade with a unique design, it has a plethora of galleries an exhibits that make the park a far richer place to visit. Disneyland in California is praised for its line up of smaller experiences that can be enjoyed without a height requirement or giving motion sickness. MK needs more of that, not less.
There were other places to put a lounge, and despite the staggering number of poor decisions made for this park in just the past few years alone, this may be the worst one since they replaced a ride with a meet n greet hall.