Ian,
As a regular reader of this group, and a participant in several other groups about GMail, I can assure you that this is not something from a focus group, and the basic functions of this change (hiding select labels, and drag-n-drop labeling) are two HIGHLY requested features. While I may not agree exactly with the way they did it, I'm learning to use it, and submitting suggestions to Google (through proper official channels) to improve the functionality of the system.
The only label I haven't found the ability to hide/unhide is the Inbox label, which makes some sense to me anyway. You can go in to configure which of your labels you want showing in the pane, and with Keyboard shortcuts, you don't even have to have the list open to switch to any of the labels you want.
You have to remember that all labs are experimental features and they are destined to either become a standard feature, or get removed. They created the "lab" option as a way to quickly test new ideas, and expose them to the larger audience to see how they'll be received. Since this was so highly requested, I'm sure it wouldn't have been a lab long anyway.
If you like having them all show, then just configure them that way. If you'd like to hide them all, then configure it that way. They obviously cannot please everyone, so if the way they did it is so offensive to you, and you cannot bring yourself to suggest it to them (as a true Beta tester should), then changing to another carrier is probably the best solution for you. I hope you find what you're looking for.