I recently saw that the Muppet Wiki article on this song now has info on why the song stopped airing early on, sourcing a 1998 interview with Joan Ganz Cooney (so the information has been out there for a long time...): It was all because of the rumor that the initials were meant to be LSD.
Which I knew the controversy, but never really put together that that's why it was pulled (and looking through this thread before posting this, I saw that a few have talked about it, one person even doubted that's why it was pulled). I thought maybe it was believed to not have any real educational value (I don't really know what it's teaching), or maybe they thought the bright colors were too distracting or too bright/seizure-y.