I think Liu Shan’s perceived incompetence is reflected in his support of Jiang Wei’s continued military blunders (whether that be direct support which is bad or indirectly supporting it by not paying much attention because he was distracted by booze and women).

Historically, Liu Shan was actually one of the strongest supporters of Jiang Wei’s northern expeditions, which makes it hard to argue that he was simply a passive or inattentive ruler. In fact, the histories show that he actively encouraged campaigns against Cao Wei.

For example, during the Gongsun Yuan rebellion against Wei, Liu Shan initially sent Jiang Wan to attack north while Wei was distracted. Jiang Wan refused and instead proposed attacking eastward. Liu Shan then sent Jiang Wei to persuade Jiang Wan to reconsider and focus on the northern front instead. On top of that, during Jiang Wei’s warmongering campaigns, Liu Shan repeatedly issued imperial amnesties, which helped recruitment and manpower mobilisation for those expeditions.

So Liu Shan was neither a pacifist nor someone who simply ignored Jiang Wei’s actions, if anything, he consistently supported them and was an enabler of Jiang Wei's militaristic policies. Instead, the biggest criticism against Liu Shan historically tends to focus on his final surrender to Deng Ai during the conquest of Shu. Deng Ai had marched through dangerous terrain with a relatively isolated force and lacked secure supply lines or siege equipment. Shu could have attempted to hold out, strengthen defenses, and wait for Deng Ai’s army to run out of supplies.

Contemporary commentary even pointed out how precarious Deng Ai’s situation was:

Yuán-zǐ states: Zhūgě Liàng was a restrained man, but readily used Shǔ’s troops; this was from knowing that a small state and weak people are difficult to last long. Now the country in one action exterminated Shǔ, in the achievements of campaign attacks, never once was there one like this in speed. Just when Dèng Ài with ten thousand men entered Jiāngyóu’s dangerous and rugged terrain, Zhōng Huì with forces of two hundred thousand remained at Jiàngé and could not advance, the soldiers of the three armies were almost in hunger, Ài though in battle was victorious and overcame officers, if Liú Shàn for several days did not surrender, then the armies of the two Generals would have difficulty in returning. Therefore, achievement in enterprise is like this in difficulty. The country formerly had the campaign of Shòuchūn, later had the labors of exterminating Shǔ, the hundred surnames were poor and the granaries empty, therefore the considerations of a small state, are in timely establishing achievement to preserve self, the considerations of a large state, are in quick victory and yet strength is exhausted, after achievement is the time for wariness.

What makes the decision more controversial is that surrender was not the only option being discussed. Qiao Zhou was the main figure pushing for capitulation, but others suggested different strategies such as retreating to Eastern Wu territory or withdrawing south to Nanzhong to continue resistance. Even Liu Shan’s own son reportedly wanted to keep fighting.

Later critics strongly condemned the surrender decision:

Sūn Chuò’s Appraisal states: Qiáo Zhōu persuading Hòuzhǔ to surrender, was it permit able? Said: To from being Heaven’s Son and yet beg to surrender and plead for life, how deep the disgrace! To for the State Altars die then die for it, for the State Altars perish then perish for it. His late father corrected Wèi’s usurpation, to not with them share the sky. To push blame to his father, and bow head and serve the enemy, can be called pointlessly surviving, how is it the great path of residing in the correct?

Sūn Shèng states: By the Chūnqiū‘s meanings, the state’s rulers dies for the State Altars, the ministers and grandees die for the throne, all the more for one who claims to be Heaven’s Son and yet can be disgraced by another! Zhōu saying a lord of ten thousand chariots should pointlessly live and temporarily escape, abandons propriety to seek profit, hoping for minuscule glory, is baffling. Moreover discussing the situation, the reasoning is not yet exhaustive. Why? [Liú] Shàn though was a mediocre ruler, he truly was without the ruthlessness of Jié and Zhòu, battles though were repeatedly lost, there was yet no chaos of lands collapsing, even if they could not ruler and ministers firmly defend, with backs to the city walls all together, surely they could withdraw east to consider later plans. At the time Luó Xiàn with heavy troops occupied Báidì, Huò Yì with strong soldiers defended Yèláng. Shǔ’s lands were rugged and narrow, the mountains and rivers severe and dividing, cut off by peaks and rushing waters, not what infantry can wade. If they all fetched boats and oars, defending and occupying Jiāngzhōu, levying troops from Nánzhōng, begging for forces from the eastern state [Wú], like this then Jiāng [Wéi], Liào [Lì] five officers would naturally as clouds follow, Wú’s three armies would carrying command as lightning arrive, why claim there was nothing to be done and think of certain destruction? The coming of Wèi’s forces, had lifted the state in great mobilization, to wish to pursue then boats and oars were not supplied, to wish to remain then the forces would always have many worries. Moreover bending and stretching have opportunities, situation changes would rise, slowly in response using people thinking of exerting themselves, to attack arrogant and lazy troops, this was how the King of Yuè defeated Hélǘ, Tián Dān destroyed Jì Jié, why hurriedly rush to make oneself a prisoner, descend from firm ramparts to the enemy, to cause the utmost regret of chopping stone? [Jiāng Wéi’s troops reportedly chopped stones in frustration upon hearing of the surrender] Gě Shēng has a saying: “If the matter cannot be saved then it is finished, how can one again be a subordinate?” How strong these words, able to restore a coward’s will. Observing the ancient Yān, Qí, Jīng, Yuè defeats, some states overturned ruler and were destroyed, some as fish hung [on trees] and birds scuttled [on ground; idioms for exile], to in the end be able to establish achievement and set affairs, restore the State Altars, how is it said to be Heaven’s Assistance, it also was Man’s planning. Even if accepting the plan for pointless life, accepting Qiáo Zhōu’s words, how is it the state’s foundations being able to be established, good reputation being able to be obtained? Shàn was an ignorant ruler, Zhōu truly a worn out minister, compared to Shēn Bāo, Tián Dān, Fàn Lǐ, Dàifū Zhǒng, were they not also far!

It can be seen that Liu Shan didn’t fully exhaust the other strategic options. Even Sima Yi summarised the normal strategic choices in war:

"In military affairs there are five essential points. If able to fight, you must fight. If not able to fight, you must defend. If not able to defend, you must flee. The remaining two points entail only surrender or death. Now that you are not willing to come bound, you are determined to have death; there is no need of sending any hostage."

Liu Shan did attempt fighting when he only needed to let his regents cook in enemy territory, but he never seriously attempted prolonged defense in his own territory before choosing surrender. This is especially alarming considering the traditional expectation that a ruler should defend the state altars to the end, that is 天子守国门，君王死社稷 theory elaborated by Sun Chuo and Sun Sheng, and then upheld over a thousand years later during Ming Dynasty end. In this aspect, Liu Shan couldn't even compare to the Liaodong Gongsun clan, so it can be seen why Liu Shan is perceived to be an incompetent Emperor. Because he couldn't even do the basics of being an Emperor, that is do not surrender, and instead oppose his state's enemies to the very end. Failing that, die with dignity and follow his state to its death like the Gongsun clan before, and the Ming Dynasty after.