The difference between something that is well-designed and something that is merely designy seems pretty self-evident if you base the judgment on functionality. But the difference between the two is always being blurred, usually by marketers trying to gain an edge for a product that's not essentially different from its market competitors. So we get designy bottles of dishwashing liquid, designy stainless-steel appliances, designy retro-looking appliances and other pseudo-novelties. Design improvements that allow us to consume or use a good more efficiently are conflated with improvements that shift our attention away from use to abstract contemplation -- the good becomes a mirror in which we see reflected our own good taste. Designy-ness, like so many consumerist products, lets us consume ourselves.
These efforts to sell products as a vehicle for design combine to create a climate in which design for its own sake is functionality, an aesthetic end that inherently enriches the lives of those who get to handle such "beautiful" objects. Industrial designers like Apple's Jonathan Ive get elevated to the status of artists, as if their aim was not to sell more goods but to create the Good. Consumerism is thereby transformed into a kind of democratized connoisseurship; Target (or, if you are still trying to preserve class distinction, ABC Carpet & Home) becomes a museum from which you can take home the objets d'art.
So what is wrong with that? This may not be a convincing answer, but designy-ness is an ideological sheen on consumerism, redeeming commodification while furthering it, permitting mass-distributed designy-ness to supplant genuine heterogeneity. In genuine heterogeneity is the chance that we might really redeem the promise of individualism -- that we will be able to garner social recognition for being ourselves, and recognition could be separated from being judged or taxonomized. But designy-ness and its off-the-shelf aesthetic (often prepared by lauded gurus) militates against that. However much we enjoy our own tastes in such stuff privately (solipsisticly) we become typecast when we exhibit those tastes publicly.
Terry Eagleton gets at this problem in the Kant chapter of The Ideology of the Aesthetic:
In the aesthetic representation...we glimpse for an exhilarated moment the possibility of a non-alienated object, one quite the reverse of the commodity, which like the 'auratic' phenomenon of a Walter Benjamin returns our tender gaze and whispers that it was created for us alone. In another sense, however, this formal, desensualized aesthetic object, which acts as a point of exchange between subjects, can be read as a spiritualized version of the very commodity it resists.
Designy goods, as spiritualized versions of consumer junk, elevate the practice of their exchange to something more seemingly dignified and become the medium for social contact itself. That is, as good possessive individualists molded within capitalism, we are isolated by our tastes and the goods whispering our ersatz uniqueness to us, and we gloat in our transcendence until the loneliness overwhelms us, and we are driven to participate in society, which we can do only on those same terms, at the level of our tastes in everyday goods, in mass entertainments, and that sort of thing. We think we are curators of our own personal museum of tasteful, design-y goods, but in the end it's someone else's institution and we are just the guards.
(For more deep thoughts about design, see this post at one of my other venues.)