I hated how this episode handled discord's character, the show's shown his progression from Jerk to Empathetic Jerk, and then this episode drops him down to Chaotic Jealous Weirdo. I'm sure that the creatures he summoned were illusions, due to starlight ohkoing the bug bear, and he would have reversed any damage done to the students, but i hate how the episode dealt with him.
First of all, to emphasize that discord didn't care about losing his physical form in the school grounds, the animators could have shown him standing smirking whilst being disintegrated, but that's just a nitpick.
Second of all, i really don't get why starlight resolved the issue by saying Sorry, what did she have to be sorry about? Twilight leaving her in charge and not discord? The fact that she can't fight the literal spirit of chaos? The fact that she banished his physical form due to him potentially harming KIDS?
I have no idea why starlight even tried to banish discord, who is literally god tier, we've seen her learn the lesson "Words over magic" MANY times before, (Every little thing she does, The Cutie Map, No second prances etc.) why has she allowed herself to fall into the same pit AGAIN?
The episode would have ended much better if it was more like the Baby Cakes resolution, starlight being traumatized at the sight of discord's actions and breaking into tears, whilst discord emphasized for her and reversed the chaos he has conjured while apologizing and telling her the reason of his actions.
It would have been nice if discord actually retained a permanent place in the school aswell, especially seeing the abilities of his magic and the possibilities that would bring.
Overall, i thought this episode was one of those Great Idea but Terrible Execution mlp episodes, though honestly it's much better than some episodes like "28 Pranks Later" and "Yakkity Sax".
I agree with most of your points though,and Twilight's personality has dropped since season 4, from an interesting character to some pony who's obsessed with organizing and planning and just about nothing else.