From what I see there a thousands of ways to "grimmify" the Oz of the books. but this one is my favorite: OZ is a dictatorship under the absolute control of Ozma, who monitors the populace via a sinister magic mirror from her tower in the Emerald city. She is served by a group of close friends, who put down dissent efficiently and quickly Everyone is immortal, and so dissenters are merely mindwiped, giving new identities, and released back into the general populace, giving them new individuals to meet and talk to. The Great desert and the Great Glass Wall prevents anyone from leaving or entering. The populace is forbidden from performing magic, except for the aristocrats, who consists mainly of Ozma's friends. Those not under Ozma's control are instead enslaved through mystical means by one of the many malevolent magic users who abound in Oz.
(this mostly stuff taken from the books, believe it or not.)
We just started an Oz section of our campaign! I am not sure where our GM is going with it, but it seems pretty neat thus far.
He had us each write down a couple of stories/fairy tales that we would like to see incorporated into the campaign and he has it all mapped out. The Land of Oz has worked out very well thus far.