Garland should have been cast in the movie. With all her erratic qualities at that point in her career, what would have wound up on the screen would have been worth it. Russell was awful (great in the right role--this wasn't the right role for her) and Merman might not have faired so well, either, as what she had didn't really translate to the screen.
Liza as Louise, though, on stage or screen would have been a waste of her. Louise is supposed to lack talent, and the show doesn't give an actress the opportunity to really prove otherwise, unlike Cabaret, which does give such opportunities to Sally. "Little Lamb" is so close to a Garland-style song that it might have evoked derision at that early point in her career.