I can really see both sides of the Muppet Babies issue. Wasn't it Bernie Brillstein's idea to develop the show to give the Muppets a regular television presence in the mid-eighties (when the company's focus had drifted to the Creature/Fantasy projects)?
The downside is that, since the Muppets had so few visible projects in the late eighties, most people my age (and in the years surrounding) were kids during that time, and think that the Muppet Babies are the Muppets. It seems like they have forgotten that the puppets are really what the Muppets always were.
While I like the idea of keeping the characters visible, and their personalities recognizable, I think the cartoon series should have been a part of a larger plan, and they should have been balanced with the puppet Muppets in the minds of the audience. I think the Henson focus just went elsewhere, and once the show was rolling, and had success, they didn't think about what damage that this series may have been doing to the franchise.
Those are my thoughts anyway.
Scott