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@Dante, I don't think they've been Worf'd.
One dwagon can be made per turn. They can carry two people, have assorted ranged attacks, and seem to be decent fighters even without using their breath weapons. (Or fecal bombardment in the case of yellows.) Granted, the pop rate is probably that fast due to the Arkenhammer, but a rate of one per 2-3 turns still sounds good for a specialty armored flying mount.
While I don't recall a precise pop rate for Meglogwiffs, I think it's safe to assume Jillian could pop one every 6-8 turns with the help of Vanna. This is based on the amount she brought to the battle of Spacerock. Not all are in panel, but judging by their formation, she brought 9 including her own. (Reference) I don't know how large the time gap is between Faq getting a city large enough to pop Meglos and the battle, but I'm going to make an estimate of 50 turns. This wouldn't give enough time to pop all of them in one city, but I'm pretty sure it's mentioned somewhere that Faq has at least three. Makes sense for them to concentrate on warlords and soldiers until they can pop Meglos, then switch so they have a full stack plus Jillian's.
Meglogwiffs have loads of health, some level of damage reduction, the ability to hold loads of riders (2-3 stacks estimate), and can capture a number of prisoners at least equal to that. However, they don't seem to be capable of dealing much damage at all, and with so many riders, the stack bonus would be non-exisitant. (Rob explained stack bonuses here in the comments.) So meglos appear to be an incredibly good transport ship, with a powerful capture ability. But, this is heavily offset by their cost, and the fact that using one for their intended use makes for a very ineffective combat plan. I remember reading that dismounting causes units to unstack (could've been a fanfic), so using them for transportation during battle would either lead to loads of unled units running around, or make you lose entire stacks if your enemy manages to bag a giant, mushy, siege engine.
I think they appear so powerful mainly because we've only seen them in combat twice; once in an infantry-heavy battle (where they work best), and once in a battle where Charle intervened. Until the hobgobwins turned, Stanley's dwagons were doing fine. Sure, the 'hammer barely scratched the meglos, but Fate caused it to miss Jillian, it's safe to assume Fate also messed with the damage rolls.