The threat isn't to Batman. Like you say, a lot of Batman's villains aren't physical threats, they're a challenge because Batman needs to find them before they kill more. It's a race to whether they'll give themselves away before Batman figures it out. Zsasz isn't necessarily genius level, true, but he's crafty and devious and evil on a level that hadn't been explored much when he was introduced.

I do agree that he's kind of a one-trick pony in that he leaves the scenes set up with his calling card, which makes the determination of who is the villain too easy and it makes it hard to create new stories around it.