I just saw this movie at the San Francisco LGBT festival with a packed house at the Castro Theater, where it provided one of those lightning-in-a-bottle moments that sometimes happen at film fests. Yours truly is a cynical old curmudgeon of a film-goer, and when a movie can win me over this way (along with the rest of the audience) it's like a gift from out of the blue; I found myself not questioning or analyzing the experience, just letting myself give in to pure enjoyment. I'm not surprised that it keeps winning audience awards at festivals; people are grateful when a movie sweeps them up into its own world.
How the magic happens here, I don't know, especially since this is a movie by such a relatively inexperienced director. But I think I can put my finger on a few elements that make this mix happen. First, Wendy Robie as the drama teacher. I previously knew her only as crazy Nadine ("silent curtain rollers!") on "Twin Peaks." She's every gay boy's dream teacher from high school, and only gradually do we begin to realize that she must be more than she seems. Second, though the film is called a musical, and there are indeed songs, the use of music is surprisingly sparing. We don't get a big musical number every 15 minutes; instead the songs are used to capture certain states of mind and to introduce magical elements in the story. I actually left the theater wanting more music (a rare experience!). And third, the ugly homophobic elements in the movie at first seem almost jarringly realistic; this serves to heighten the magic of the wish-fulfillment.
Magic doesn't always work in movies or on the stage; not every production of "A Midsummer Night's Dream" can capture Shakespeare's whimsy. But for me, it does work in this movie, and I'm a little awed by the experience.