I've said it before and I'll say it again, Sesame Street has gradually lost momentum ever since Jim died.
The Muppets were the core of the show, and he was the rudder that steered the ship. Without a rudder, the only direction you ship can go in is circles.
Since Jim's death, Sesame Workshop has had to compete with shows like Barney. This led to a gradual lowering of the show's viewing demographic, and the rise of the current format that stresses repetition and structure. Like clockwork, episodes opened with a street scene, a Letter of the Day segment, following a predictable formula, and inevitably the last 15 minutes given over to Elmo. Before, the show, although thoroughly researched, did have that element of surprise, that you didn't know what the next segment was going to be. Those days are gone.
Can't blame the downturn of the show entirely on Elmo, but while Jim was alive, there was a balance and chemistry that worked. No one character, however popular, dominated or defined the show. By devoting at least 1/4 of the show's airtime to one character, the biggest expense was abandoning a number of characters could have kept that balance together.
I know some people have given me grief when I made this comment before, but Sesame Street could have stood as a the most powerful show in children's tv history if they wrapped it up after 20 seasons. (Maybe 30) From 1969-1989, 20 perfect seasons. Very little filler. But then again, if they stopped at 20, a thread like this wouldn't exist.