The 3rd season earned its reputation not just through fan-favorite episodes like "Yesterday's Enterprise" and "The Best of Both Worlds" but also through "filler episodes" that were actually watchable.
This episode's semi-intertwined plots differ sharply in quality. The Data story had potential but really struggles due to the awfulness of the actors playing the colonists. Data's innocence is simply not enough to carry this story. Nevertheless, there is some nice drama in Data's "reverse psychology" speech to the colonists as well as his destruction of the water pump. I also enjoyed his tense conversation with an impatient Riker.
The B-plot -- Picard trying to buy time with the impending alien invasion force -- is in fact much more interesting, and could have been excellent as a stand-alone episode. This plot largely centers on Patrick Stewart, with a nice assist from Marina Sirtis. Troy was generally more interesting as a diplomat and advisor than as a shrink. Their discussion in the ready room, with Troi illustrating the challengings of intercultural communication, is a highlight of the episode.
However, it can't beat Picard's ultimatum to the Sheliak. It's so entertaining to see him saunter up to the Enterprise plaque and casually polish it with that cocky indifference. Hilarious.