The downside of a Phase II is the budget aspects. Sure, they had models and standing sets, but in the early 80s that motion control was still very expensive and that's what sank Galactica.
Well, what sank Galactica
was that it wasn't very well-written and ratings fell off swiftly after the pilot. I think it was doomed by the quartet of lame, directionless standalone episodes they did after "Lost Planet of the Gods" -- two of which were just pastiches of old Westerns, and most of which created huge, unaddressed conceptual problems. (If the Cylons wanted to wipe out all humans, why were all these human colonies-of-the-week left alone? Conversely, if those colonies were safe from the Cylons, why didn't the fleet just settle there?) The series somewhat found its voice later on, but by that point it was too late; I think those weak early episodes caused too many viewers to lose interest.
And yes, the high budget was a problem, but that wasn't entirely due to the VFX. Apparently Glen Larson wasn't very good at keeping within a manageable budget. The Galactica 1980
sequel series was deliberately designed to be as inexpensive as possible (Earthbound settings, cheaper cast, reuse of existing sets, props, costumes, stock footage, etc.), and yet Larson consistently went so far over budget that it ended up costing as much as the original show.
Lord Garth wrote:
I'm a bit surprised that more of the Phase II scripts weren't recycled for TNG's second season to give them even more of a head start. At the very least, using one more Phase II script at the beginning would've done away with the need for having a clip show like "Shades of Gray" at the end.
said, those have nothing to do with each other. Clip shows don't happen because a show runs out of scripts -- usually any show has more scripts in development than it actually ends up using -- but because it runs out of money. When they run over budget for the season, as TNG did in season 2, and can't afford to shoot an entire episode, they shoot half an episode and fill in the rest with stock footage.