I'm not concerned about it not being able to be docked. And this is coming from someone who almost never uses his Switch in handheld mode. But there is definitely a market for the Switch Lite, and at $200 it still offers plenty of value. As long as they keep making the regular Switch (which they 100% will), then this introduction is only good.
Although, serious question here, will the ugly colors hurt sales?
Grey is standard fare for a console as it's pretty neutral. Yellow isn't ugly. Turquoise is the only odd one, but that's exactly what will make it appealing in the UK because they have strange taste; the original 3DS's aqua blue looked very similar and was surprisingly popular in the UK, relative to other countries.
With the introduction of a handheld-only SKU, the number of special editions will increase sharply, so anyone who doesn't like any of the three current colors will have plenty of other options in the future. Besides, new standard colors are also only a matter of time, so before long we'll see red, black, green and others.