I disagree, taking Alsace Lorraine wasn't a mistake, and passing up the opportunity would have been politically impossible anyway. France started the war, and lost utterly; territory inevitably changes hands when that happens, not even Bismarck could resist the nationalistic and militaristic impulses. I would also point out that the Germans at this time viewed the annexation as a sort of payback for French expansionism vis a vis Germany from the Thirty Years War onto Napoleon (and Louis Napoleon), as a sort of karmic justice. That the territories were ethnically/culturally German (it's an utter mistake to compare Alsatian to Dutch, English, Scandinavian etc, the territories were much closer linguistically, geographically and politically to Germany than that, comparable to Austria and yes Switzerland whose independence owes itself less to innate non-Germanness than the presence of non-German groups and a wildly different political development ie Switzerland would be most likely after Austria to be part of an ATL Germany) and strategically and economically valuable were cherries on the cake.
The problem lay in what they did afterwards. Had the Prussians granted statehood earlier and been less hamfisted over Gemranization they would have had a much better time in A-L. Moreover they erred in picking Austria over Russia and alienating Britain on top of that, though one cannot fully blame them for this as Russian expansionism vis a vis the Balkans was blatantly Imperialist to a degree that makes Prussia look like Switzerland.
In any case seizing French colonies would have been a far graver mistake than seizing Alsace. Not only would they be useless but they would antagonize Britain and draw Germany overseas, whereas OTL Germany was able to wash her hands of Africa etc and play neutral peacemaker until the Liberals, Kaiser, and Nationalists decided to play France and Britain's ball game.
Moreover I do not think a failure to seize A-L would guarantee French amity towards Germany; although it would take the edge off their relations given the jingoistic attitudes of the day and the longstanding French position of being the premier land power and keeping Germany divided they may well have been drawn in against Germany anyway when the Austro-Russian tensions boils over. With the border that much farther west plus Germany having colonies tying her down and the loss of the A-L ore fields that match up would be even worse for Germany than the OTL Great War.