I'm going to say this... While I once decried the idea of Sesame Beginnings, I feel they really had Henson beat by using real puppets. And the puppeteers in most cases.
That said, I like the MB cartoon for what it was. We'll never see that sort of quality in writing in a preschool show for some time. I think Toei did a pretty good job with their animation. it wasn't the best things, but they really added a lot of small details into the show. The first season wasn't too great, and the Japanese animators confused some voices from time to time (due in part the fact that Japanese animators aren't accoustomed to animating a vocal track- all voice over work is done after wards). I wish they would have gone with TMS instead, looking at the absolutely beautiful job they did with Ducktales and Rescue Rangers.
I think the animation suffered in the last few seasons, where the animation was sloppy, the coloring varied, and it just looked stilted. After watching Fraggle Rock animated, I really wish they went with Akom productions. I'm not a fan of how half the characters looked (the Gorgs especially), but the animation was pretty fluid and well done. This is the studio that would one day do the Simpsons, among other things.
A Puppet MB would have been amazing... but the budget for the show would have been pretty amazing too. And not amazing in a good way.
It's almost too bad that Jefferey Scott didn't get on board and work with the Waldo/motion capture series so it would have got off the ground, though. That had potential.