I think I would say that it's definitely better than a lot of people give it credit for. People like to talk like it's a slog, but it has a good amount going for it. I think it could shine like a new penny with a bit of elbow grease. I agree with you that some refreshed lighting could make a big difference in the ride.
I'm not the biggest fan of Projection Mapping, but if used tastefully I can see how that also could pump up a handful of scenes in the ride. Pleasure Island seems like an obvious choice. Maybe some projection and fiber optics creating the Blue Fairy's radiating magic inside the giant Bird Cage to make our "escape" more magical than just a door opening and a sound effect:
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Monstro could maybe benefit from projection, too - though I feel like that scene could maybe use a bigger rethink. It seems positioned to be the climactic scare of the ride, but it doesn't live up to Monstro's . . . monstrousness. The fact that Monstro already has a bigger moment in Storybook Land probably played a part in this as well. It seems silly to have
two rides in Fantasyland where you get swallowed by Monstro, so I get why they didn't try to do that, but if they're just going to give us a lesser Monstro scene in the dark ride then maybe it'd be better to just try something else entirely.
I like Lampwick's transformation scene, but aside from the Hologram effect in his mirror that many seem to miss it's very nearly the same gag as the Queen's transformation in Snow White, which I think it maybe compares unfavorably to. I bet there's a way to make a bigger impact with that moment that also differentiates it from the Queen scene.
The Blue Fairy at the end is already the best effect in the ride - litter the scene with even more Fiber Optics and some projection to bring in that radiating magic again and the scene could be better than ever. Maybe do something where her magic sets off all the clocks and mechanical objects in the cottage as we ride by them.
It also seems odd how little "When You Wish Upon A Star" factors into the ride - you'd think a big, choral version of that would be playing as you make your way out of the ride. We only hear a brief instrumental before heading into Geppetto's cottage. The celebratory song that plays in the final scene is more upbeat and makes some sense, but it seems like this ride should make a more prominent home for the de facto Disney Anthem. Maybe restage Jiminy with his Badge at the final window in the cottage, looking out at the Wishing Star, with him hitting the high notes as we're sent into the Unload.
And
please, while you're at it, make that final Pinocchio figure on the bed a Real Boy instead of a Puppet! It seems like such a silly thing to have done in the first place.