State of the loo's dreadful! (7)
I believe the answer is:
lesotho
'state' is the definition.
(Lesotho is an example)
'the loo's dreadful' is the wordplay.
'dreadful' is an anagram indicator.
'the'+'loos'='theloos'
'theloos' anagrammed gives 'LESOTHO'.
'of' acts as a link.
(Other definitions for lesotho that I've seen before include "Landlocked country in southern Africa" , "Country entirely within South Africa" , "African territory" , "Country, an enclave of South Africa, capital Maseru" , "Kingdom within South Africa" .)