Was it ruined? I see it as a celebration of the Latin culture on full display at the Oscars with an over-the-top performance that is common in that culture.
Sure it wasn't faithful to the movie version, but it appeared to be accepted by most in the audience from what I saw.
Even though it wasn't nominated, a full-cast version of the 'Encanto' song 'We Don't Talk About Bruno' was an inevitable Oscars standout. '
variety.com
From what I've seen the Oscars can use an infusion of this type of over-the-top performance.