It was nice to see Xander and Oz working together on their rescue attempt, and it worked as a way to repair the rift between those two characters without being too in-your-face about it. Less impressive is the use of Cordelia in this episode, who regresses to season one status: she takes potshots at the Scoobies and when she finally does begin to help, it is for reasons rooted in her own shallowness ("First the thing at school, and then my mom confiscates all of my black clothes and scented candles!"). It's more than a little annoying.
"We need to save Buffy from Hansel and Gretel."
But on other levels, it works pretty well, particularly with regard to the drama of the witch hunt itself. Turning Joyce against Buffy is altogether too plausible, given her reactions to learning about Buffy's life as the Slayer. Some of her statements and actions are understandable, becoming suspicious only moments before it's revealed that she's acting under supernatural influence. Willow's mother, whose absence from the series thus far is justified in her characterization here, is equally plausible in her rejection of Willow's witchcraft. It makes for a pretty scary scenario.
The "fairy tales are real" element, involving Hansel and Gretel, doesn't work quite as well. It's little more than window dressing, having not much to do with the plot. It functions only as a shorthand way of giving the monster some identity by tying it to history, although in that respect the episode would have done better giving more prominence to the actual historical witch hunts than to a fairy tale which has nothing to do with witch hunts on its own. Knowing that the children are the basis for the Hansel and Gretel story doesn't really tell us anything about them as characters, or illuminate any themes of the episode, nor does the connection serve to make any real commentary on the fairy tale itself. But it functions well enough as a nifty bit of flavorful background info and it gives Giles something to research, so there's that.
Amy makes another appearance, which is nice because she's generally a fun character, and it's pretty amusing to see her fate at the end of the episode. But one has to wonder about Faith's absence from this episode, and why Joye doesn't send the townies after her as well. I suppose we have to chalk that up to Eliza Dushku's availability. In any case, it comes out as a really enjoyable episode, with loads of fun and some pretty serious drama, even if all the pieces don't fit together in quite the right way.