The market is actually recovering quite well from that incident, so what exactly is so worrying? A bad business failed; that's what's supposed to happen.
My point? It's hard to be reasonable about things when you're coming at them from a certain perspective. Just as a criminal sentenced to life without parole probably thinks that the courts trying him are corrupt, people who lost a lot of money on MtGox probably think that the entire economic system and Bitcoin market is broken. Are they correct? It's possible, but they're not in the most rational frame-of-mind right now, are they?
We've created this kind of weird deal with banks, where you loan people money at super-low rates, but in return you're insulated from the normal consequences of failure, and have a ton of flexibility in terms of when you can demand repayment of your loan -- to the point where most people don't probably consider their bank balances a loan.
I'm not here to say that this is a good or a bad thing. Mt. Gox was more like a normal loan or almost every other financial instrument in the world, and less like a bank. It seems hard to suggest that it's uniquely bad for Mt. Gox to act like almost every other financial instrument in the world -- as long as expectations are aligned that it's not the curious anomaly known as a "bank."
The real situation turns out to be far worse than I expected, but what I expected had me off Gox months ago.
If fraud is involved, someone will go to jail and authorities will attempt to recover assets. This is perfectly normal in a functioning market.
You cannot claim that because crime occurs the market isn't functioning.
"what exactly is so worrying? A bad business failed; that's what's supposed to happen."
If all that had happened was a bad business failed, that would not be very worrying. I don't think anybody would be upset if MtGox had simply closed their doors and returned all their customers' funds. What is worrying is how many people outside of the business appear to have lost their property in the incident.
You can judge for yourself whether you feel the market is "functioning" — but if that many people lost that much money, it is absolutely not what is supposed to happen when a business fails.
You seem to be of the opinion that whether a market is riskier than most participants realize (and would be willing to tolerate if they did know) is tangential to how well it is functioning. That's a valid viewpoint. But it still makes sense for participants to worry when they realize how little safety they have in the market.
But in fact only the money invested was lost, which I imagine was an order of magnitude smaller than what was reported.