My thinking about Dungeon is this: It was probably a mistake for Donald to cut Dungeon from the base set; there are certainly a few cards in the base set that seem expendable (Donald has mentioned Feast, for instance), whereas I feel like the base set could use a trasher that's more flexible than Moneylender but less intense than Chapel. If the Dominion base set had been published with Dungeon and not Feast, it probably would have been a better game at the time.
But, now that there are 180 other Dominion cards out there, including not only Masquerade but also Steward and Remake and Forager and Lookout and Junk Dealer, I don't feel like adding Dungeon now would really add very much to the overall game.
That said, Dungeon seems like a perfectly fine card, and if you're looking for cards to add just for the sake of adding them, it seems like a decent choice.