I believe there are several areas of concern here. First off, China doesn't really want a nuclear peninsula, because should nukes be used, where will refugees go? North, to China. China doesn't like that idea at all.

Then there's the proliferation problem. If you assume that there is a small, but finite, chance that a specific nuclear power will use a nuclear weapon, then the more countries there are that possess the capability, the greater the odds that one of them will use it (probably on another nuclear power). If North Korea remains nuclear, it won't be long before South Korea and Japan are nuclear as well, probably followed by yet others. You get enough people with their own version of 'the button', the odds that one of them will press it goes up.

Probably the biggest concern is that North Korea has never created any kind of weapons system that it didn't end up selling to others. An extension of the argument above (that any country has the right to develop weapons for defense): any country also has a right to sell the things it has produced. Sounds great on paper, but when you're talking about nuclear weapons, there's a danger in just anyone with a couple hundred million bucks being able to buy them.

It does sound like they failed with this test, which is good. They probably failed because they haven't yet figured out the correct shape for the conventional explosives used to blow the fissionable materials together and begin the nuclear reaction. That was the one thing that Princeton physics student who designed a suitcase fission bomb a couple of decades ago also had problems figuring out. Ultimately, he couldn't solve that particular problem (because it takes a lot of testing) so he social engineered that information from the U.S. government itself. Fortunately, North Korea cannot do that. So, there will probably be more testing until they figure that problem out.

If we weren't embroiled in Iraq, North Korea's failed nuclear test would probably be a decent indication that we should attack them right now militarily, before they figure it out.