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I must have watched this as a kid because this post got me to re-watch it and I recognized parts of it, but I also read serveral of the Oz books way back when, so I could have been remembering that.
Anyway, I can see where it might scare kids, but it is no worse than the Dr. Who episodes that send kids hiding behind the sofa.
I have never watch all of the wizard of oz, but we had this on DVD as a kid and I watched it a lot.