I'm asking that because, with the exception of the defeats against Prussia and Mexico, he succeeded to raise France as a fully industrial nation, gave some rights to the workers (like the right of strike) and played a major role in the creation of both Italy and Romania. So why is he seen as incompetent ?
Napoleon III did a lot of things the "wrong way," even though he often got reasonably good results. He is remembered more for the first than the second.
For instance, he was elected as President in 1848, but became Emperor after a coup d'etat in 1851 because he wasn't allowed to run for other term. His first post coup years were repressive, although he later "eased up" on labor to allow strikes, foster industrialization, and rejuvenate Paris.
In foreign policy, he toppled the position of his own country, France, over a quarrel with Prussia over the Spanish succession, a topic that was basically "none of his business." This was arguably the worst diplomatic mistake of the 19th century, and more than offset his successes in the Crimean War and the Franco-Piedmontese war against Austria, which benefited other countries more than France.
To quote Marc Anthony out of context, "The evil that men do live after their deaths; the good is oft interred with their bones."
Napoleon III was President of France from 1848-1852 and Emperor from 1852 to 1870, a measly 22 years in total.
Napoleon I was consul of France from 1799-1804 and Emperor from 1804 to 1814, or fifteen long and glorious years, plus a hundred more days in 1815.
Napoleon III only managed to give France a mere 18 years of peace in his reign.
Napoleon I gave France a full year of peace in 1802-1803 during his reign.
So clearly Napoleon I was far superior.
A correction. In the 22 years that Napoleon III ruled France there were 6 years in which France was involved in wars in Europe and 16 years when France was not involved in wars in Europe (72.72 percent European peace for France).
There were 14 years where France was involved in colonial wars outside of Europe and 8 years when France was not involved in colonial wars outside of Europe (36.36 percent colonial peace for France).
Combining the two sets, there were three entire years and parts of other years when France was not involved in wars and enjoyed peace (13.63 percent peace).
Napoleon I achieved one year of European peace in 1802-1803 (6.666 percent European peace),or 14 months out of 15 years, making 8 percent. And since France was fighting in Haiti at that time there was zero percent overall peace in his reign.
I note that the various British Prime ministers of Queen Victoria's reign were unable to give the United Kingdom any years of colonial peace (0 percent colonial peace).
And the Presidents of the United States of America from 1846 to about 1879 were unable to totally avoid foreign wars or avoid constant overlapping internal conflicts with various Indian groups plus a very bloody civil war (0 percent internal peace).
As mentionned in another answer, from a French point of view, Napoleon III did a lot of things. But this was not always for the good reasons:
He did improve the streets and buildings in Paris. This was partly to ensure a better security in the city: famous Haussman boulevards were made for troops to manoeuver against a riot. The transformation of the city also led to some people being rejected.
Napoleon III was criticized by Victor Hugo, who admires Napoleon the 1rst. This played a role since Victor Hugo is a wide-known writer in France and the world.
On a military plan, he did have and maintain an efficient army. But this army was used wherever on the world, from Mexico to Crimea and even China. But later he lost the battle against Prussia on French soil. Note (this is important) that there are no factual links between the use of French Army from home and a lack of efficiency against Prussia in 1870-1871. This might even be the contrary. But the defeat on the soil of France and the loss of Alsace-Lorraine is more to remember.
On a diplomatic plan, he did create a good audience for France in the world. France, country of freedom. Garibaldi even created a corps and fought with it in France in 1870-1871. But Garibaldi also, for example, captured Rome using the fact that France was stuck against Prussia. This is politics.
So overall, Napoleon III had done good things and bad things. But some bad things (not necessarily his entire fault) are so huge from a French point of view that they outweighed the rest that could be more important from a global point of view.
I suppose it was essentially because he lived a bit too long.
I once read (I think it was in a George Orwell essay) that a "great" leader usually means one who dies or leaves public life before anything has a chance to go wrong. Thus had Petain died in 1930 he would today be revered as a great French patriot, and had Benedict Arnold been killed at Saratoga he would be similarly remembered in the US.
There are a few exceptions. The first Napoleon failed in the end, but only after a sufficiently grand career for him to qualify as a "great" notwithstanding. But these are very exceptional, and Napoleon III isn't one of them.
It is no accident that of the three most highly regarded US Presidents, two - Lincoln and FDR - died in office, and the third - Washington - only two years after leaving it. It's usually a mistake to stick around too long.