As a relatively new fan during that time, I hated Backlund's entire run. He was so plain and generic that it totally didn't interest me at all, as a 6 year old. Plus he beat my hero at the time, Bret Hart for the title so I really didn't like him but it wasn't heel heat it was more like Michael Cole, get him off my TV heat.
Plain and generic? He played a weird sqealing, shrieking psycotic old man. Nothing plain and generic about that! He was great at the time. I guess that, as you were only 6, it makes sense that you didn't like him. I, for one, found him insanely enjoyable (or enjoyably insane).
As far as I know it's a situation where Vince panicked at the potential of low buyrates with Backlund as champ and he undoubtably had the Kliq in his hear.
It's not to say it wasn't entirely planned though because Nash had just come off his "breakup" with Shawn Michaels and was getting huge reactions at the time.
I always felt that the Shawn Michaels / Diesel match had enough going on that adding the championship didn't really add anything. These two seemed destined to face each other at Wrestlemania right from Survivor Series 1994: it just seemed inevitable, and as a result the Royal Rumble win / title match just added nothing. Personally, I'd have had Diesel / HBK feuding without
the title, and I'd have put the title from Backlund to Owen - building up to an epic, feud closing Owen Hart / Bret Hart championship match at Wrestlemania 11.
Backlund could have been (and should have been) kept in the main event by feuding with Hart for the title after Wrestlemania.