Firstly it promotes/perpetuates negative stereotypes about gay people.
If you see them as inherently negative, perhaps... but they are often very accurate stereotypes of some gay people. That isn't 'negative', it's freaking fun. To see it as negative, to think that the rest of Pride is 'embarrassed' because of queens/camps/effeminate male gays or the opposites for gay women, is not up to you and yes, is slightly homophobic.
I agree there is confusion behind what is homophobia and what is simply not liking the certain campness and flamboyance presented by some lgbt people. However I think that is simply irrelevant. This is not a situation in which the heterosexuals' feelings need to be spared just so they don't have to be tentative of appearing homophobic. The pros of gay pride and of the event of gay pride are vast and, in my opinion, freaking wonderful;
I love Pride. I feel so, so happy at Pride. I see it as such a brilliant celebration of how far lgbt community has come, and when I attend I am drawn into that happy feeling instantly; there is nothing negative about the Prides I've been to - it is pure happiness, love, and excitement, and lots of beautiful people. The only negativity I've seen comes from homophobia within the festivals, often intentionally hostile to create arguments and tension.
Every day is a day for heterosexual people to celebrate being straight - everything is predominantly aimed at them, society is sculpted for them, no-one looks if they kiss in public or hold hands in public or celebrate their hetero status. Finally people are becoming more accepting of lgbt people doing the same, however it still isn't quite there. Pride is a day or several days for people to really go mad with their lgbt loving, to really celebrate what they are and who they are. It is to show people they aren't 'going anywhere' because yes, to some people that still needs to be made clear. It is to unify people - you don't have to be lgbt to go to Pride! By creating something so brilliant and fun for everyone to join in, Pride welcomes heteros who may be 'wary' and who may have incorrect preconceptions of the community. It brings them in and usually shows them a good time (or could even serve to them their own homophobic opinion).
You and many others may think there is no reason for them to do it all - and that is 'stupid'. There is every reason for the community to celebrate how far they have come and to show fearlessness in the face of many homophobic obstacles through Pride. Criticising how they do it, saying they could just 'tone it down' a bit so as not to encourage negative stereotyping, is somewhat homophobic, whether you want it to be or not.
Who does Pride harm? What does it do wrong? Nothing. It, in my opinion, is only full of messy OTT brilliance, fun, and incredibly encouraging confidence. It's inspiring. I am so happy it exists and have never thought it 'stupid', though certainly pity those who do because they cannot see the massive joy of it. As said above - the fact that it encourages many young lgbt people to embrace themselves and/or come out is absolutely invaluable.