My theory, advanced very tentatively, makes it make evolutionary sense for the clit to be located where it because women would tend to prefer mates who gave them orgasms through taking the extra effort and time (since men on average come quicker) to provide clitoral stimulation, and that would be adaptive if the willingness to do that was associated with greater loyalty and more attentiveness. We don't know whether this is true, of course, but suggestion of an adaptive mechanism is explanatory progress, as long as one doesn't insist that all traits are adaptive. Some -
[WS:] An alternative hypothesis is that the clit lost its function as the only erogenous organ as a result of the process described by dd, and other organs - anything from feet to hair - assumed that function. That seems to be consistent with the observation that for humans virtually any part of the body can be defined as "erogenous" - I recall reading an article on that in my cultural anthro class long time ago - and thus provide sexual stimulation, whereas a similar tendency is not observed in animals, which depend mainly on direct stimulation of reproductive organs.
I think this hypothesis is different from your reasoning claiming that clit positioning is a "useful defect" in that it claims that clit's positioning lost relevance altogether, so it is neither bad or good. What matters in reproductive success is not direct stimulation of the reproductive organ itself (especially the female organ), but the ability to produce sexual arousal by alternative means - stimulation other erogenous body parts, as well as culturally defined behavioral cues.
Wojtek