Personally, I don't care for it, but why is it any more ridiculous than "Colleen," which comes from the Irish word "cailín," also meaning "girl"? (Because we're not nearly as accustomed to it, of course.)
It's quite an ugly name. I don't like the "mad" in the name. It would sound ridiculous in Germany, knowing that it's their word for "girl". A real German name would be a better choice.
Please note that this isn't used as a name in Germany at all. It is simply the German word for "girl" so calling your child this is like calling her Girl which is quite ridiculous. If you don't speak German you will never get the pronunciation right as well as the -chen part is really difficult to pronounce for non native speakers and it is impossible to describe how to pronounce it (all the previous pronunciations listed here have been close but not exactly accurate). Gretchen for example is also pronounced differently in German than you would in English. The -chen part is just much softer. The Mäd- part could be pronounced as either "Mayd" or "Med" depending on the accent. Don't use this "name".
The only person with this name I've heard of is Mädchen Amick, and it was never meant to be used as a name. It means 'girl' in German, so it sounds very bizarre to anyone who can speak the language. I bet many people who would consider using this have no clue how to pronounce this, and the sound of this name is very foreign in English-speaking countries. It isn't a pretty word anyway, and even the meaning is infantile.