DisneyAnimation, yes, The Blue Fairy and Fairy Godmother are rather similar, I noticed too. They also both reward the main characters for their goodness. I do not have a problem with the main idea of Pinocchio, but more, how it is done.
DDivinity, yes, well, Pinocchio really bothered me! I also have a few qualms about Bambi, like I don't think the twitterpatted scenes are that good and the spring song just bursts in our face right after Bambi's mom's dead, wth?!
Wonderlicious, I think I read at least...a lot of the original book, when I was young, from the library, but none of that really would let me know all you revealed, I'm just letting you know for the heck of it!
Anyway...after what you said, I can better say what I think my problem is. It is not so much the world of the film which sickens me, because the real world and nature don't (seem) to give us any gentleness. But the Blue Fairy is not as kind as she could be to a little boy who's only wrongdoing is disobeying when adults pressured him into it. And she's like God, she's fate, and she can make everything better, but she doesn't! I understand thinking of her as "mysterious in her ways", but perhaps I simply must say I don't like the way they did her character, and feel she is wrong. It also seems to go against the benevolence of fate and other characters in other Disney films. Even looking at Gepetto, he seems kinder than her. She suggested that next time he got himself in that situation, she would let him become firewood.
Also, I think I feel the brutality done to Pinocchio and the other boys, making us watch that, it's just...we're watching children get tortured. That's what we're watching. And there may be something wrong about that.
The story concerns the coming-of-age of a character, where the protagonist must become self-sufficient and mature in order to survive and gain a confident identity; simply expecting a good fairy to help, and more importantly not having good personal judgement of others or potential situations, will simply get one nowhere. And yet equally one can potentially rise above previous mistakes to be a stronger person.
But the fact is the Blur Fairy in this film is real, and can help. Why have her come help him from the cage at all if she's supposed to be more like an un-involved God? And how was what Pinocchio did so evil? And how did his being good actually get him anywhere but dead?