As Dr. Phil would say, "How's that working out for ya?"
It was a classic case of people wanting to be litigious or do-gooders and making the situation much worse than it already was rather than accepting the best option that was available.
Have you ever read about the Magdalene Asylums?
To my knowledge it wasn't the less-than-perfect parts of institutionalization that caused us to get rid of them, it was the abuse of aspects of those systems that caused us to abandon them, and thus it is the abuse of those systems to which we should probably compare our current solution.
One possible missed opportunity of course- institutionalization has been marked, and may never be seriously considered again. Yet it's possible with sufficient oversight it could be a useful system.
The problem is that the move to community based care was a move to say individuals have to do the work themselves and should expect no help from the community. If we were serious about better outcomes for people with mental disabilities, health and domestic care would be free for those that use those services.
A crazy naked homeless man taking a shit in the middle of a public library is a problem. Yet in our society, it is often difficult to remove these sorts of folks.
These are difficult problems without easy solutions. We moved away from institutionalizing people because it was cruel and ineffective. But we're left with hard cases who are difficult to deal with.