I think the threshold has some small use, but mostly because the Sainte-lague method we use to allocate seats is incredibly generous to very small parties. If we got rid of it entirely, you could get into parliament with relatively few (ten thousand to twenty thousand) votes. What we should do instead is set the threshold to about 0.87%- or more clearly, the amount of the vote required to win a single seat outright. Any party that wins one hundred-and-twentieth of the vote deserves to have their list votes counted, and sit on their one select committee, and have parliament figure out how to accommodate their micro-party.
I don't buy the argument that a high threshold helps keep extremists out of parliament- it's free speech, good media, (when we can get it) and critical thinking that will do that, and do you know what? We will HELP those processes out if we let the extremists into parliament, and let people see and hear exactly how bad they are. Radicals, bigots, theocrats, whoever, they all deserve to be shown that we have an inclusive system that they still can't function in, because the populace doesn't like them. And frankly, I worry that excluding parties like ACT will simply result in their largest supporters falling back to trying to corrupt our politicians or media instead of campaigning directly for votes, and that's not the kind of New Zealand I want to live in, even if I'd rather they were defeated and never came back to parliament. If enough people to earn a seat vote for a party, they should get it.