Twelfth Night, Royal Exchange Theatre, Manchester

It's a leaky old place, this Illyria, water mysteriously seeping up through the ground. And I wouldn't fancy bed and breakfast in the island's Twelfth Night Hotel. It's the sort of dreary place you'd want to check out of as soon as you'd caught sight of the other guests.

Yet, as if introducing a somewhat different production, the opening of Lucy Bailey's Twelfth Night for the Royal Exchange Theatre ("the closest we've got to Shakespeare's theatre," she declares) is completely magical. The stormy soundscape that has been hurrying us to our seats erupts with magnificent force and the shipwrecked twins, Sebastian and Viola, twist and turn in a free-falling descent. That the first words are not, as in Shakespeare's text, Orsino's but Viola's "What country, friends, is this?" matters not a jot when Viola is so touchingly and thoughtfully portrayed by the superb Emma Cunniffe.

But Bailey's lightweight production focuses too much on silliness and too little on the play's gentle melancholy and lyrical atmosphere, reducing its brilliantly organised humour to somewhat laboured shenanigans and its emotional range to something much more one-dimensional. The food of one guest's love is the poison of another, with live rock music exploding from one room and tuneless caterwauling from the drunken rabble in the stairwell.

What happened to the karaoke? In her fusty hotel foyer, with its droning television and no doubt its smell of stale smoke and beer, the designer Katrina Lindsay has captured the seedy bleakness of Presley's "Heartbreak Hotel", into which Bailey has poured her stranded travellers - misfits, jokers, unrequited lovers all - post-party in mood, and desperately seeking any sort of diversion.

With a tiresome Feste adopting an at times impenetrable Spanish accent, a Fabian with another heavy Mediterranean accent, and a Sir Toby Belch whose drunken dialogue is a sip or two too slurred, it's not a show for those who care too much about the text. The scenes between Viola and on the one hand Orsino (Mark Bonnar), and on the other Olivia (an amusing Madonna-inspired Madeleine Worrall), are effectively handled.

There's a genuine touch to the farcical elements, especially when officious Malvolio, given a sterling portrayal by John Ramm, is wickedly set up by Belch (a versatile performance by Richard O'Callaghan), his asinine chum Aguecheek (Jonathan Bond), and Ellen Thomas's poised Maria. The burst of frantic comedic activity to the strains of "Funiculi, funicula" is one of the funniest moments in the show. But there aren't enough of them.

The surrealist slant that Bailey imposes on the play - the hotel is an island slowly sinking beneath rising waves - prompts questions that the production never addresses. And the whole point of Shakespeare's topsy-turvydom and revelry is that they need to grow from within the drama's shifts of mood, not feel imposed upon them. Almost in contradiction to the absurd possibilities inherent in these robust comic situations, there are too many gags and easy laughs from people falling over at the slightest pretext and wallowing in ankle-deep water.

Until 25 October (0161-833 9833)