The rest of the fairy nation's very survival doesn't depend on it, I reckon, even if losing it would probably make them more miserable. They can do with less human happiness, and they can even fetch it from wherever they want, individually, like becoming employees of normal amusement parks. Latifa can't do much by herself, being so weak, and apparently she demands great amounts of happiness simply to continue to live.
Actually my sympathy is greatly on the wizard's side as well. He saved them from the dragon, and was backstabbed as a thanks. The only redeeming revelation would be that the dragon was sent by the wizard in the first place, and thus it would have been a classic plot of the problem and solution being created by the same person. However, nothing so far suggests that was the case.
Still, the rest of Latifa's curse makes this all pretty meaningless. They should instead search for a cure.