Creator Backlash: Despite efforts to shift to script written episodes in Season 2, it was even more of a ratings disaster than the first season, and it was seen as a disaster in the eyes of everyone involved with it, according to Milton Knight. Also, Don Oriolo, then-owner of Felix, was very unhappy with how both seasons turned out, and was absolutely furious with how the staff handled the characterization of his dad's characters in the second season, especially the depiction of Professor and Rock Bottom. Tellingly, in his own History of Felix video, Twisted Tales is only mentioned in very brief passing.
Executive Meddling: Because CBS wanted the show to be aimed at kids, the staff was forced to pull back much of the adult humor. And apparently, a big reason for the season 2 retool was because Don Oriolo wasn't too happy with first season and wanted to put his dad's characters in the show, hoping to "save it". All of the new supporting characters, Peeking Duck, Fats Holler, Candy, etc. were ordered to be scrapped, and characters from the Joe Oriolo era were brought back on his orders.
Franchise Killer: Along with the box office failure of Felix the Cat: The Movie, the poor ratings of this show and it's abrupt cancellation led to the Felix the Cat cartoons getting put on ice yet again. Only low key revivals of the show came out in the years after, including Baby Felix and the direct to DVD film Felix The Cat Saves Christmas, before the franchise fell off the radar altogether.
Keep Circulating the Tapes: The show is almost impossible to find on home video, getting only a handful of rare VHS releases, one rare DVD release in the US (containing only the first four episodes) and a few in China and Germany. The fact that Don Oriolo hated both seasons and virtually everyone involved in the show hated working on season 2, combined with the show being jointly owned by Lionsgate, which recently acquired Starz, which in turn owns the library of Film Roman, and DreamWorks Classics/NBCUniversal (who got the show after acquiring the rights to the character in 2014), has only added to the difficulty.
Screwed by the Network: Part of the reason the show tanked so hard in ratings was because of it being plopped in very poor time slots; Half the time "Twisted Tales" was completely bumped by sports shows, making it very difficult to establish regular viewers. To make matters worse, the show was also plopped directly opposite to The X Men, which was a huge ratings hit at the time.
Troubled Production: Milton Knight, an animator and director on the series, claimed that the production for the show was fun, but not exactly ideal. Other staffers have pitched in on the internet over time that the show's production was rather turbulent.
One major problem during production was that they couldn't make up their mind what kind of cartoon this was supposed to be: studio head Phil Roman was most comfortable with the plot-and-dialogue-driven approach used in his commercial successes Garfield and Friends and The Simpsons, and had given this series what seemed like a guarded blessing—there was one group who wanted a Felix like the Otto Messmer shorts, one group who wanted Max Fleischer surreality, Don Oriolo, the current owner of Felix, wanting it to be like his dad's made-for-TV Felix cartoons (which most of the staff working on the show was against—they ultimately, but begrudgingly, added certain elements from it into Twisted Tales, like the Magic Bag), one group who wanted the show to be Ren and Stimpy-esque (understandable, since some of the artists on the show were former Ren and Stimpy artists), and one director who wanted a Robert Crumb influence! With so many cooks in the kitchen, the direction of the show tended to be all over the place, with Felix himself often getting swamped in importance by a large cast of supporting characters and his chaotic world.
On top of that, per word of Mark Evanier, the studio had a terrible time finding a voice for Felix, saying they may have set a new industry record for most actors auditioned for one role (to where even staff of the studio were trying to audition for the role), and they wound up recording the show with a "scratch" (temporary) voice and animating to that. The final voice was only selected a few weeks before an episode aired and was dubbed in.
Another problem was that in addition to having a month to storyboard, design and do layout work on each short, they could not learn from their mistakes, because by the time film began to come in, the season had been just about wrapped up. Some directors could handle writing and boarding a good cartoon, while some couldn't. The artists had no say on retakes in animation either, which was left to Phil Roman to decide—and unfortunately, the overseas animation on the show tended to be rather sluggish. This only got worse with the second season, with Korean company Plus One having to rush episodes through, resulting in sloppy artwork and very bad animation timing (with "Nightmare on Oak Street" being one of the worst examples in the second season). On top of that, they were behind schedule, so they couldn't order retakes to correct any mistakes.
Eventually, Phil Roman and Don Oriolo found the "Cartoonist Driven" approach of the first season to be too taxing on them, and not even worth the trouble since, despite being one of the most expensive shows that Phil Roman's studio had made, the first season turned out to be a flop in ratings, due in part to a terrible time slot—it was sandwiched right between sports shows and then-ratings giant X-Men, making it very hard to establish an audience for the show. On top of that, Don was just unhappy with the weird direction of season 1 having almost nothing in common with Joe Oriolo's Felix, so the second season went through an extensive retool. While the first season was storyboarded while working from a basic outline, and was absurdly surreal in its premises and animation, the second season decided to take the series into a direction more in vogue with the Joe Oriolo Felix cartoons and shift production to make the show a more standard TV cartoon, with scripts replacing the all-storyboard approach (usually provided by the writer of Garfield and Friends, Mark Evanier, who has remained silent on the series ever since), resulting in much more linear plotting and less surreal humor and more emphasis on wordplay and one liners, as well as bringing back some of the Oriolo era characters like Poindexter, Master Cylinder and The Professor while forcing most of the new side characters to be scrapped in turn. This move was met with outright hostile reception from the shows staff, particularly Timothy Björklund, the producer of the first season, who knew Don's meddling would only make things worse and bailed on the show just two weeks into the second season's production. Evanier attempted to voice direct the actors instead of the directors, but after a couple weeks of trying that, the results were so disastrous that the studio was forced to drop that position and hand over voice direction back to the cartoon directors.
The staff retaliated by writing whole episodes that took jabs at the second season's toned down retool, such as "Attack of the Robot Rat" (which infuriated Don Oriolo for being a ruthless parody of his dads made for TV Felix the Cat cartoons), "Phoney Felix" and "The Fuzzy Bunny Show". The first few scripts they received were followed closely, but Craig Kellman, the show's new producer, finally fought for the artists to have more storytelling and creative control on the show, and they were able to completely scrap the scripts and write their own shows, ironically giving the crew more freedom than they had in the first season. Some episodes were tightly scripted and some were not. Unfortunately for them, the VP of Children's Programming, Judy Price, who wanted the show picked up in the first place, got fired, and Felix the Cat Inc. was so unhappy with the show in general that they refused to renew the license for Phil Roman to continue using Felix, guaranteeing a third season wouldn't happen. To make matters worse, the second season turned out to be an evenbiggerflop in the ratings, and it ultimately got the show canned, with season 2 ending after just 8 episodes. The show's failure ultimately put the Felix the Cat cartoons on ice yet again, with only low key revivals coming of the series after the fact.
Writer Revolt: Most of the staff openly hated the made-for-TV Felix cartoons made by Joe Oriolo in the late 50's/early 60's, and wanted the show to exclusively follow the roots of the original silent cartoons and abandon the characters and tone of the TV cartoons. Don Oriolo, Joe's son and then-owner of Felix the Cat, insisted that they at least include certain elements from it like the Magic Bag so that the show would have some kind of tie to his dad's work. As mentioned earlier, by the time the second season started production, Phil Roman and Don Oriolo decided to take the series into a direction more in vogue with the Joe Oriolo Felix cartoons and shift production to make the show a more standard TV cartoon, with scripts replacing the all-storyboard approach, resulting in much more linear plotting and less surreal humor and more emphasis on wordplay and one liners, as well as bringing back some of the Oriolo era characters like Poindexter, Master Cylinder and The Professor. This was a move that did NOT sit well with the staff—In response, "Attack of the Robot Rat" had the writers shoot back by making it a very mean spirited parody of the Joe Oriolo Felix cartoons. "Phoney Felix" can also be seen as a Stealth Parody of the retool of Season 2, with Felix having his show hijacked by an imbecilic imposter who imitates some of the traits of Oriolo Felix, such as saying his "Righty-O!" catchphrase, singing the TV show theme song and using a (shoddy knockoff) of the magic bag of tricks.