I passed on the original DVD since it was foolscreen, but I love the movie dearly (The grouch diner might just be one of the funniest scenes in a kids' film) so I will definitely pick this up.
Warner Bros. generally is very good about doing double dips on their movies that improve on the original release. Sony generally isn't known for that, so I doubt a better release of Elmo in Grouchland is in the cards.