Mediocre Thesis Topic. Does this Hurt my Reputation
A PhD is documentation that you can do your own research.  You don't have to take what you're given.  That said, maybe your advisor considers the "toy problems" a warmup for more advanced research?  You should talk to your advisor and also to other faculty members you trust.  Let them know that you are concerned your topic may be weak.  Perhaps they will have some ideas on how you can make it stronger.  Depending on the outcome of these discussions, you may want to shop around for a different advisor who is a better fit for you, both in research interests and personality.  The key is to take charge of your own dissertation.