I was at MUC when this was going on. It was ATC who decided that this was an emergency, which considering a wheel had just fallen off a departing aircraft, was a reasonable call. As for not continuing to VIE, that was reasonable as well as the pilots still would be uncertain if any other damage had occurred. Retracting gear and continuing to VIE should only be done when you have no other options and continuing gear down (with passengers) would be very silly. They did perform a low pass to enable ATC to see any other damage, but that will only be a superficial inspection at best. Being at your departure also gives you maximum endurance for trouble shooting and if you have to, multiple go-arounds. As it was, the weather was good and at MUC, like other German airports, you will have world class RFF facilities. Additionally, as far as the passengers are concerned, there is a frequent service from MUC to VIE so their interests would be best served as well.
All in all, anything which turns an "emergency" into a non-event is a good thing.