How bad is bad?

I would fail that its very distorted and as you say the tyre bead didn't seat down into the rim

Sec 4.2 RfR 1.a

That for me would be a fail, did you say that you could see the tyre bead when the tyre was fitted?

My standards for wheel distortion are "does the tyre tread visibly go up and down when rotated?" and "Can the tread be seen to weave when viewed from the front and the wheel rotated?"

If the answer to either of these is yes then either the wheel or the tyre is distorted.

If the base of the bead is visible that's enough for me to fail it.

I think sometimes is easy to fall into the trap when looking at defects/damage such as this and to immediately think it justifies a fail.
Looking at the damage to the wheel it does not look all that bad,,so to fail it for badly damaged ,no ,is it badly distorted,, does not appear to be as the damage seems confined to the outer rims,,so I would not fail it on that.
That leaves the failure "badly distorted bead rim".
Although sometimes a bead rim can look bad to the point where part of the tyre bead can be seen,in my opinion it's not necessarily a fail as both tyre and bead rim are still doing the job.
If on the other hand the bead rim has badly distorted to cause the bead of the tyre to badly distort also then I would fail it.
Sometimes damage/defects like a lot of issues within the mot,where precise examples are not given ,it's down to the tester to use his own experience and knowledge and to consider
Weather the defect/damage is likely to adversely effect the road worthiness of the vehicle it's reached the stage where .in this case,has the wheel reached the stage where repair or replacement is required .That's my theory on how's bad is bad