So much going on in this episode.

First, the wow factor: pretty great. Fans love the supervillains, and here we get to play around with them a little bit more -- probably as much as we can reasonably have in a season without it going too grim. Sombra and his horde were pretty impressive (although, alas, he still doesn't get a speaking role). Chrysalis got to do stuff again, Nightmare Moon rebuilt her old castle, etc. Plus, as others mentioned, the main characters being recast in each scenario was fun. And Zecora! She got to do something!
This episode also keeps in mind that while it's fun to have villains to wrestle with sometimes, these are all clearly the bad "what-if" endings. Accusations of being literally fan fiction miss the point: Those scenarios only happen when the whole structure of the show has broken down, and no pony stepped in to be that defender of Equestria's virtues. Although that does raise the question: Were we seeing only the most catastrophic timelines? Was the Sonic Rainboom really the
only thing standing between Equestria and an infinite boss rush? Or were there other, better outcomes where the rest of the mane six (or some other group of ponies) still stood against evil and triumphed?
The time travel mechanics... are what they are. I see them less as a big plot hole and more of a homework assignment for the fans over the long break to piece together.
So, Starlight Glimmer.
As a villain, she is in fine form in this episode: not just being able to fight with Twilight, but touches like her propagandizing that Twilight can't really argue effectively against, or her taunting. She's somewhere between a normal pony and a supervillain, but her strength is really her ability to shut down Twilight's friendship speechifying.
That said, this episode pumps her up so much that the ending really did need a little more
oomph to justify her redemption. In the season premiere, she had her one weird trick to make everyone equal (princesses hate her), but Twilight was also able to handle her attacks easily when she wasn't taken by surprise. Here, Starlight always has the upper hand, and her magic gets ridiculous -- levitating herself in Cloudsdale for most of the hour, seemingly being better at combat than the pony whose job is fighting monsters and existential horrors,
and being able to just rewrite Starswirl's time-travel spell to do whatever she wants (but not enough to get a pair of wings, it seems).
It's very tempting to fall into power-level arguments or wonder why a better unicorn than Twilight could fly under the radar her entire life, but the larger problem is how to redeem someone like that. She's like Moondancer inasmuch as her personality problem stems from losing a friend in her formative years, but this time, Twilight's friendship isn't really the answer.
I agree with what others have said: Because she's almost up there with the supervillains in terms of power and motivation, she needs more than just a friendship speech. Yes, she was sad as a child that she lost her boyfriend, but she has always viewed Twilight with contempt, not jealousy. The about-face from "You only showed me the future you wanted me to see!" to "Maybe I just need more friends!" was crammed in at the end. I would have sacrificed the final song to send Starlight to meet up with her long-lost friend (or, hell, back to the past to fix things up there!) to bring her character arc full circle.
As for her coming back in season 6 (or, as people are speculating based on that tweet from Jim Miller, that she's joining the main cast), I just don't see much room for her to grow without being a retread of Sunset Shimmer. I suspect she'll be confined to a few character-centric episodes.