I don't think calling an idea "terrible" is a bad thing, so long as you're clear why you disagree with the idea. Personally, I try to soften the language a bit -- "terrible" can sound harsher than intended -- but ultimately, what's the difference between saying "That's a terrible idea", "In my opinion that's a terrible idea", "That's a bad idea", and "In my opinion, that's a bad idea"? In the end, they all mean the same thing.
It's not, in my opinion, disrespectful to disagree with somebody's ideas, and it's not disrespectful to tell somebody their idea is a bad one, so long as you're not dismissive and rude (i.e., "LOL, dumb idea", or something of that nature.)
I understand reasonable minds can disagree, but I think that if people are getting riled up because somebody rejected their idea more harshly than they would like, things are getting a little out of hand. I mean, I've got no problem with acknowledging a mod's mistake (and have done so plenty of times, both publicly and privately), but I think Fafnir's words were, at worst, harsh. I don't think there was anything offensive, disrespectful, or dismissive about them.