This can be read in a number of ways. For some people, this is a failure of democracy. In this view, democracy is about doing the will of the people. The Government used this approach to survey the will of the people, then chose to ignore it. That would be a valid argument, but for two faults. Firstly, democracy isn't really about the will of the majority of people. It's about making a government accountable to the people. But a democracy also has to respect the rights of all people. Without this, democracy can merely be another form of totalitarianism, enacted by the majority against the minority. Even if that were not the case, a few thousand - or even a few million - comments are not a majority. The second issue is eloquently captured by The Register. Comments on websites are notoriously parochial and ill informed (a criticism that can justly be extended to many blogs...). A plumber who has lost work to Polish competitors tends to focus on their Polishness, ignoring the fact they might be cheaper, more reliable or better. There may be some good, well considered comments there - but separating finding them is not going to be an easy task.
So, why did the Government do this? If this was a PR exercise to give the people a sense of involvement in Government, then it seems to be a waste of time. The comments were merely used as a way of shaping the spin to justify policies that had already been decided. As such, it's more likely to have a negative effect and further alienate the electorate. I doubt, for example, the response on Europe will satisfy any Euro-sceptic and they will continue to hate Polish plumbers for being better plumbers.
My guess is this is a Liberal Democrat idea. The idea that people should have more input to Government is a good one and consistent with that party's ideology. It is, however, quite alien to both the traditional Tory party and to the civil service. It's also a little naive to take this particular approach, given the almost universal experience of newspapers and their comments section. I'm not sure if this is a poorly thought out approach or poorly executed, but in either case I suspect it has done more harm than good.