Excellent review, Lisa--thanks.
I think the main reason that Markowitz Mean-Variance Optimization has come under attack is that people misunderstand (or misrepresent) what diversification is intended to accomplish. Effective diversification is not about reducing or eliminating MARKET risk: it is about reducing or eliminating DIVERSIFIABLE risk. When the market turns south, the market turns south--and there's no way to escape it except by not being in the market. The key is that when some high-return assets--but not the entire market--turn south, then other high-return assets will ordinarily be turning north, which enables the diversified investor to reduce diversifiable risk without sacrificing high returns (by avoiding the market altogether or by investing in low-return assets).
There is just no way to overstate how important MVO is in helping people achieve a tolerable/comfortable level of volatility without forcing them to give up the wealth-creating benefits of high-return assets.