Yeah... you pretty much summed it up as well as anyone. Obviously what they were going at is an episode to set up the Prime Directive. The PD itself is quite often morally lacking at times, but this one... well I guess if they're trying to set the precedent for every TNG and VOY episode where they watch a disease or some other disaster destroy a planet and entire race and just shrug citing the Prime Directive, well... mission accomplished.
This episode... I just don't know what they were thinking. As you said, everyone gave a great performance in it.... but it's the material, not how it's presented that's just... morally repugnant. This is a minor spoiler, but since the guy appeared in TOS I'll bring him up. In a future episode Colonel Phillip Green is mentioned. He's the guy who purged 37 million people after WW3 because they had radiation sickness and he didn't want them passing the defects to the next species. Archer condemns this as barbaric and sickening to a person who idolizes him... yet that's small change compared to this. And the exact same concept really.
It just comes back down to... what were they thinking?! I'm sorry, but I think Phlox and Archer are both first rate jerks for this alone. Which is kinda why I said skip the episode if you're a fan of Phlox.