No the unit is not defective. You do not use domestic speakers for Karaoke. You need a system using PA speakers for band usage, unless you have very powerful speakers.
I suspect those speakers were junk before you blew them, so no great loss. Builders never put in good speakers with a house.
You do need to check the wiring though, as you never know if there is a problem. Never assume anything in this business. If it can happen, it will happen.
Decent speakers are never cheap. You will not likely find speakers the same size. In walls do tend to be problematic. So you will need a set of three as the front stage needs to match.
It is best to have speakers with back boxes.
Before advising you a budget is required, and what dimensions you can tolerate. Speakers with back boxes are strongly recommended and not ones that blast into the wall space.
Almost certainly some drywall work will be required.
I do have one in wall system, but I design and build my own speakers.
That is a pretty potent system and probably would tolerate Karaoke, but you can blow anything up if you try hard enough. My wife calls that her system. That leaves the AV room to me a lot of the time.