No she does not suck because of damage... her damage is fine and her wake up options are in fact among the best in the game (like 3 different forms of reversals, very hard to actually rush her down).She sucks cause of her damage output and wakeup options but people can make her work.
She sucks because her high low game kinda sucks and she can't do much about chicken blocking. Her cr.L isn't a low. Her air dash is also very linear, you know how she is going to approach which makes her easy to zone out. Her pressures is mediocre which makes it easy to just push block and get her off you.
She has no good way to capitalize a hit from super jump into a full combo... a necessarily tool these days for good characters. She has no good way to get around Missiles zoning pressure either. Her normals don't contest some of the better normals in the game... she has worse normals than even Wesker (who is like the base level for good normals in the game).
Her super options are generally terrible as well, she has no safe hyper which makes her only playable as a point character. Her lockdown assist isn't that good, if you are using her just for the lockdown assist there are better options in the game.
At the end of the day, she's a rushdown character with a weak low game, weak pressure, weak normals and minimal ways to get it. Why would anyone play her over Wolverine? Hell why would anyone play her over X23?
Can you wreck teams with her? Of course you can... this is MVC3, with the exception of Hsien Ko just about any character can wreck a team if they get their game going or if they land a hit. However, because better options exist in the game there is little to no reason to use a character like Chun Li in the game. It's like the Iron Man syndrome.