The period of time in which von STernberg collaborated with Dietrich was actually a pretty permissive time. 1929-mid 1934 was a period during which the Production Code was not actively being enforced. (You may have heard the term "pre-code" to describe it).
Perhaps the Great Depression was another factor? I've been led to understand that the Depression was a boom time for movies. Not necessarily in technical terms, but as far as ticket sales were concerned.
From what I can make out, The Scarlet Empress
didn't do very well at the box office. Even so, I'd like to think that, if nothing else, the movie took the audiences of 1934 away from their troubles for a while. There's so much going on in terms of visual effects that I can't imagine not being drawn into it, even if you're not quite taken with it (if that makes any sense).
I would suggest that 1930s audiences would have said it showed why there had to be a revolution. Quite a few people in the 1930s joined the Communist party and some even went to Moscow in the first blush of enthusiasm for a new age, that of course turned out to be as corrupt and oppressive as the old one.
They would most likely have known that the 1812 Overture, a perennial favorite for open air concerts, was created after Catherine's time and was greatly anachronistic not the least of which because it celebrated Russia's repulse of Napoleon's army which had nothing whatsoever to do with an autocratic Russian Empress seizing power from her deranged husband, in any philosophical or historical sense. It was too famous a piece of music to have NO significance and just be used as a tune with bells and gunfire. The director wasn't a simpleton and the movie is too complex to have been created for simpletons to view.
The only explanation I can come up with is that the director was an autocrat and he respected and admired autocrats so he could portray Catherine and the army fighting for her against her husband as being the saviors of Russia, the same way Alexander I and the army were perceived when they beat off Napoleon's army. The movie might not have gone over big in that time not only because it showed weird and depraved things which were not designed to appeal to a mass market, and because it was essentially visual in an era of increasingly good dialogue, but because audiences in the 1930s were convinced that Catherine and all the rest were a thoroughly bad lot and it was good they were overthrown.