It is not terrible for a vast majority of people, it is is a good quick approximate for average people. For the tiny minority of people that have large muscle masses then the BMI will give a high reading, which is correct. The problem only arises from poor interpretation of the results. A high BMI doesn't directly equate to high body fat, but it does directly relate to a high body mass for your height which is exactly what it aims to measure .
From my personal point of view it is terrible, a perfect example is it being suggested as a way of saying "hey you're obese - sort it out" by the NHS to get out of providing particular services, it gives you a suggestion in the future it may get abused in that way. May sound a little extreme but that's what puts me off it, as you say, interpretation counts hugely - I don't think its a tiny minority of people and so it doesn't make it a very effective system!
yeah you do, the old muscle is heavy BMI is rubbish is just an excuse for fatties to say they are ripped