The main reason I like "Once More With Feeling" is because it's actually important. Musical episodes tend to be rather gimmicky. They're fun diversion, but they don't often have much substance to them.
"Once More with Feeling" somehow manages to be a musical episode that actually drives the story forward in very significant ways.
You'll get no argument from me. OMWF does definitely deserve the praise and acclaim it gets (for all of the reasons you just mentioned, and more besides); I just happen to think Villains is the best episode of S6 as a whole.
Amber and Tony were singled out above as having standout performances in OMWF, but, for me, it's Sarah Michelle Gellar who 'steals the show' (especially in Something to Sing About).