Yoda works as an illustration of what's wrong with the prequels: No story should begin at the beginning. We need inferred past. What was so cool about the OT was all the past that was alluded to - the Clone Wars mention and the Ben/Vader relationship in ep.4; Lando/Han and Yoda/Ben (among other things) in ep.5 - it opened up a space for projecting our ideas and images onto the story.
The PT, on the other hand, ran out of past at once. There is no pull, no space for our imagination, in such a scenario.
The only way the PT could have worked would be if they made up new inferred past. One way this could have happened would have been using Yoda for something interesting, like tying him to the original overthrowing of the last Sith empire. Since that happened thousand generations ago, Yoda isn't old enough, but it could have happened in some other way. If he'd been some kind of war hero who started using the Force against mind controlling Sith (and won, making the Sith go underground), that would have given Yoda a past that was interesting, and a history of the Force type of thing without actually showing everything onscreen.
That way it could have been established that now he's old and almost without powers - which is more interesting than showing a muppet working at the peak of his swashbuckling powers. He fails to see the dangers of the dark side because he's old and weak (giving some much-needed poignancy to the "Failed, I have" line).
Yoda is probably the biggest missed opportunity of the prequels. There were two options: (1) either he should only be mentioned by others as a benign presence (though being physically absent), or (2) he can be a true character, but then he needs a worthwhile story with some inkling of what he's been up to for the last 800 years except being the Republic's lapdog. Both ways could have worked. Instead Lucas thought the third option, the fanservice of just being there and looking stupid (like the Boba Fett of RoTJ), and the belief that this fanservice of using a beloved supporting character as a main character would trump the need for an actual Yoda storyline with actual character motivation.