I'll try to flesh out some of the stuff I alluded to. But I just want to point out at the outset that in presenting these points, I'm not interested in 'proving' whether Olcott or whoever got it right or wrong, nor am I trying to say what their intentions truly are. If anything these points illustrate the conditions in which they were working, and I'm merely trying to reflect on how these conditions of the past may continue to influence the conditions today.
So for example, while Dharmapala welcomed Olcott, some years later he disassociated himself from Olcott, criticising him for being 'ignorant' and for betraying Buddhism and the Sinhalese (the many studies on Protestant Buddhism discuss this). What interests me is not whether Olcott was right or whether Dharmapala was right. Rather, I'm interested in the conditions that prompted the animosity between them... what does it tell us about the relationship between Western interpretations of Buddhism and Asian interpretations. How have these tensions played out? How have they shaped current understandings?
Anyway... to respond to your point about the influence of Victorian interpretations of Buddhism. One key influence is that they foregrounded the ethical and philosophical dimensions of Buddhism over its religious aspects. There's nothing inherently wrong with this, as long as it is recognised that this reflects certain Western interests. One implication of such a interpretation is that traditional Asian Buddhist practices were, and still are, dismissed as somehow 'corrupted' or seen as merely 'cultural' practices--I hope it is clear how such an attitude can become unskilful.
But to give a more concrete example, arising out of the interpretations of 'Victorian Buddhism' (this is discussed in the book The British Discovery of Buddhism by Philip Almond) is the idea that 'true' Buddhism is atheistic or agnostic. So we find Rhys Davids declaring authoritatively, ‘Agnostic atheism was the characteristic of the [Buddha’s] system of philosophy.’As we have seen here (for example, in threads about Stephen Batchelor), while such interpretations of Buddhism have its value, they are far from straightforward or self-evident. When taken to an extreme, it can lead to misunderstandings about the Dhamma and also encourage condescending attitudes towards others. In his book, Buddhist Religions, Bhikkhu Thanissaro didn't appear to view such a development favourably. In the chapter about Victorian interpretations of Buddhism, he described it in terms of 'the cult of agnosticism'. Again, I apologise that I don't have his book with me at the moment, but I will just have to hope that you would accept this in good faith.
An re: your point about Olcott using Christian-like approaches. Yes, of course it is hard to imagine what else he could have done. But what he did produced certain effects and these effects have influenced the way Buddhism developed in Ceylon. The issue is too large and complex to discuss here in a succinct manner. If you're interested, you might wish to look into the work of Richard Gombrich and others on Buddhism in Ceylon, or you could also look into works on 'Buddhist modernism' or 'modernist Buddhism'.