I will say, I wouldn;t mind animated characters if they weren't Flash. not that I have anything against it... but I miss full motion in animation (or whatever came close to it for the past 20 years).I'd much rather Muppeteers and Muppets doing the characters. Still, with the designs shown, I don't see it becoming more popular than the actual characters, so have no worries.
I could see animated versions of the characters co-existing with the puppet ones (like Ernie and Bert's Great Adventures or Plaza Seasamo's 90's openings and closings). As long as they co-exist. I do like how they brought back Grover's Disco fever, but the Animal confessions bit is a lot better thought out and planned out.