The current situation is that a short flight passenger may indeed be eligible to claim €250 compensation after a delay over 3 hours. Whether the flight cost €10 or not (it's many years since I have flown one of those).
As a traveller who takes about a dozen flights a year (UK & continent) I used to find the last flight of the day would be horrendously delayed, as all the little lags of the day had built up. The shops would all be closed, the waiting room too hot, too cold, or with insufficient chairs. It was a miserable situation where often I have just wanted to lie down on the floor and sleep.
Since passengers became aware of this regulation, and have begun using their rights, I have found the airlines much better at timekeeping. So, to me, it's not all about making money from the airline (although when we've been lied to for hours that we will be on our way shortly compensation might be very welcome) but making flight travel less of a gruelling experience.
To extend the delay to five hours before compensation can be claimed is too long: just imagine you arrive at 8am for a 10am flight, and the airline knows it can keep coming up with excuses until shortly before 3 in the afternoon!