There's two ways to look at Nightmare in Silver. The first is its success at its assignment - Stephen Moffat told Neil Gaiman to "make the Cybermen scary again."
On that level, Nightmare In Silver is a failure.
Gaiman never even tries to explore any of the psychological or technological horror they originally represented, nor does he make them particularly compelling foes even as "general monster besieging the base." His idea of scary is to have them basically be invincible by chanting "Upgrade!" Which actually manages to be even more inane than "Delete!" It also makes them so overpowered they simply aren't convincing as threats. In effect, he turns what was originally one of the most original and terrifying Doctor Who villains into laughably cartoonish ripoffs of the Borg. Even the one creepy idea Gaiman has - children cyber-converted - doesn't really land the sense of horror it should.
This is literally the least scary the Cybermen have ever been, including the dull Revenge of the Cybermen, where Tom Baker rightly declaims them as "a bunch of pathetic tin soldiers", and the goofy Silver Nemesis, where they can't even manage to effectively kill the Neo Nazis who only exist in the story as Cyber-Cannon fodder.
The other way to look at Nightmare in Silver, though, is to look at basically everything that isn't the Cybermen, and what's left is a funny, vivacious adventure with two wondrous characterizations and some rich moments of emotion and imagery.
The highlight of the episode is the Doctor. Matt Smith consistently gives the role his all, but he's rarely given a script that gives him so much to do. Not only does he get the Doctor's full range of emotion, he gets a Cyberman mind colliding with his, in addition to the Cybermind pretending to be the Doctor. Smith hasn't had a showcase like this in a long time, and the result is tremendously entertaining.
The other wonderful characterization comes from Warwick Davis, who lights up the screen every moment he's there. It's a whimsical character, something Davis does with aplomb, but he also makes the moments of drama genuinely moving. His offer to Clara is sweet on the page, but a wonderful moment in Davis' hands.
As for Clara, Gaiman gives her plenty to do, but he doesn't quite figure out who she is. After all this time, she's still a bit undefined. But Jenna-Louise Coleman is a lot of fun to watch, and Gaiman certainly understands and takes advantage of that.
He also sets it in a fantastic world worthy of more exploration than a single episode allows. How those kids could possibly be unimpressed is beyond me. (Speaking of which, while they're perfectly tolerable, they don't really add anything to the story. The one good idea - the kids being cyberized - is a frightening concept, but, again, Gaiman doesn't take advantage of it, and it doesn't really impact the episode.) And that world is filled out with characters sketched out briefly but effectively; the casualties have an impact rather than being simply a body count.
Of course, all that would work better against effective villains or plotting that made sense. The Doctor goes on and on about how they can't possibly blow up the whole planet until the climax, when suddenly we need to blow up the planet now. I suspect Gaiman intended some reasoning here, but either the episode length or Steven Woolfenden's directing flatten it. Woolfenden plays the episode as a broad kid's show, emphasizing the cartoonish and silly aspects rather than telling the story and letting the silliness flavor the tale. On the other hand, Woolfenden is one of the coolest surnames ever.
The Cybermen have a way of being functional blanks - with a couple of exceptions, they aren't interesting in and of themselves, but on a basic Attacking Monster level, they work perfectly. (honestly, only Revenge and Silver Nemesis screw that part of them up, and even there, this point remains) The Cybermen originally functioned as what Philip Sandifer coined "The Dark Mirrors of Humanity", but by being perfectly functional but completely uninteresting plot devices, they function as mirrors to just how the show works under the current production team.
Revenge of the Cybermen, even though it isn't actually good, still has terrific atmosphere, good horror concepts, intriguing teams, and a brilliant central cast, all of which shine throughout the Hinchcliffe era. Earthshock showcases a production team that can build violent intensity with exceptional skill for a low-budget '80s show and has a terrific actor in the lead, but sometimes loses the heart of the program in all the action. Rise of the Cybermen shows a production team that fully realizes savvy themes and compelling character arcs both within episodes and throughout seasons and that can technically pull of anything, but sometimes dilutes its impact by playing things too broadly, and often doesn't realize its science-fiction or fantasy elements as well as its personal elements.
And under Moffat, stories are rushed and underdeveloped, but showcase rich performances, especially by Matt Smith, a consistently spectacular production, are packed with great ideas, and have a joyous, infectious sense of fun.
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