It's not a new opinion - I wrote this review over 12 years ago:
Keyboardist David Sinclair left Caravan at the end of 1971 to form Matching Mole with Robert Wyatt and Phil Miller; Caravan picked up the more jazz-oriented Steve Miller (Delivery) to fill the vacancy and thus, for one brief album, Caravan was transformed into a bona-fide Canterbury fusion band. Miller's preference for the electric piano instead of Caravan's trademark organs made a large difference in the music's textures. Suddenly, there was plenty of open space in the mix and bassist Richard Sinclair in particular does a great job of taking advantage. There were many Caravan fans who didn't like this development (generally, the ones who consider In the Land of Grey and Pink to be the band's best album and who think that Caravan and the New Symphonia is criminally underrated), and so Waterloo Lily is one of the more controversial items in the catalog. I like the new direction and I think the album is really good; I'd rank it as my second favorite by Caravan, behind If I Could Do It All Over Again.
Changes aren't apparent immediately though — the title track, with its awkwardly adolescent subject matter (the band's persistent horny-schoolboy sexism was one of its few failings), shuffles along winkingly in a very "Caravan-like" manner and would not have sounded out of place on the previous album. The "Nothing at All" suite, though, is a different story entirely. It fully exhibits the band's new fusion direction and rather than being bland or derivative, I find it to be a breath of fresh air — something like Jack Johnson-era Miles Davis funkiness channeled through the crisp melodicism and tight arrangements of Steely Dan. The other long piece, "The Love in Your Eye," begins well (very nice use of the strings), though it starts to lose me about 2/3 of the way through.
Any fusion band worth its salt can put together a decent jam or two, but what is also impressive about Waterloo Lily is that Caravan's facility for writing good short songs remains intact: the three here are top-notch. Concise and melodic, they wear their jazzy embellishments well. They don't sound at all forced, nor do they suffer from the bloat or by-rote character that sometimes affected bands of similar ilk when they tried to write focused, accessible tunes."