There's nothing inherently "wrong" with the Psy.D. degree itself. As originally intended, it was designed to train more practitioner-scholars, sort of akin to the way MDs/DOs are trained. It's just, unfortunately, been commandeered in many (but not all) instances by programs with less-than-stellar reputations and training standards.
If choosing between a reputable Psy.D. program and a funded Ph.D. program, I'd say it comes down to what each program offers in terms of your training and career goals, and any financial ramifications if the Psy.D. is unfunded. I'd compare the programs in much the same way that I'd compare two Ph.D. programs. If all else is equal, which it almost never is, it's hard to argue against going to school for free vs. paying $100k+. But if the Psy.D. program offers substantial benefits to you, in your personal situation and calculations, maybe it's worthwhile.
Edit: also, I second everything PsyDr says below.