The question isn't really "What to do with this diorama?" It's "What is this diorama doing?"
How does the diorama tie into the rest of the museum? Is it supporting other existing interpretation? Is its purpose to grab kids' attention? Are there other solutions that better accomplish the intended use? The last one is important to ask if it's gotten to the point that time and money has to be sunk into it (which from the sounds of it, it has).
I'm of the opinion that history museums are some of the worst offenders when it comes to keeping up to what engages society. If you go to other types of museums (aerospace, science centers, natural history, etc.) and they do a much better job at keeping up with effective interpretation. A lot of Civil War museums would look very familiar to visitors during the centennial 60 years ago. And I'd bet when those centennial museums were going up people were arguing that when they visited the battlefields 60 years ago in 1900 they took a good book on the topic and used the war department markers and those worked great for learning. Times change, audiences change.
Tilden's "Interpreting our Heritage" actually briefly mentions that. Battlefields were originally laid out for the veterans. A lot of interpretation wasn't required because you didn't need to tell a veteran of the Wheatfield what combat was like in the Wheatfield. So as the 20th century went on and the visitors changed more from veterans to general public, different methods were required for interpretation. Although written in the 50's an using a type of writing somewhat obtuse today, it's still a good read for its six basic principles of interpretation:
- Any interpretation that does not somehow relate what is being displayed or described to something within the personality or experience of the visitor will be sterile.
- Information, as such, is not Interpretation. Interpretation is revelation based upon information. But they are entirely different things. However all interpretation includes information.
- Interpretation is an art, which combines many arts, whether the materials presented are scientific, historical or architectural. Any art is in some degree teachable.
- The chief aim of Interpretation is not instruction, but provocation.
- Interpretation should aim to present a whole rather than a part, and must address itself to the whole man rather than any phase.
- Interpretation addressed to children (say up to the age of twelve) should not be a dilution of the presentation to adults, but should follow a fundamentally different approach. To be at its best it will require a separate program.
Personally, I don't find dioramas all that engaging to children anymore. When they are, it's usually because everything else is even less engaging to them. Go to a natural history museum, many still use those miniature dioramas of what life was like when the dinosaurs still roamed. But you'll find kids largely tend to skip by the dioramas because the newer methods of interpretation in the exhibits tend to provoke kids much better.
I know they're fighting words here, but it was the same with the electric map at Gettysburg. Its time was passed and there were better ways to convey the same information to modern audiences.