It sounds like this movie that never was, paled in comparison to "The Star Wars Holuday Special", but not storyline related. This idea of a movie was likely an early attempt to continue profiting on the success of "Sesame Street" while its ratings were strong. CTW may have backed down on this movie idea the same way George Lucas refused to re-air The Star Wars Holiday Special" after its initial broadcast. The special was said to have nearly destroyed the Star Wars franchise, but Lucas kept on producing more Star Wars sequels afterwards, and they were very successful. CTW may have devided not to risk losing the popularity of the Sesame Street brand, so they simply chose not to go ahead with the oroginzl movie, but they went back to the drawing board.and produced the successful "Follow That Bird". It did get a nice bit of revenue, though definitely a very far cry from "E.T." and "Return of the Jedi".
Of vourse, whatI am saying is just speculation on my part.
I finf it hard to believe that "The Muppet Show" spawned a lot of movies, yet "Sesame Street" spawned only two movies (and a third now in production).