"Mermaid Man and Barnacle Boy V" was originally an experiment for an adult SpongeBob show.
Around the time of the third season's development, The Ren & Stimpy Show was receiving a mature spin-off. It's not too far-fetched that Stephen Hillenburg was approached by Viacom to create a spin-off in the same vein."Mermaid Man and Barnacle Boy V" was not only originally a special, but a lot of the humor is surprisingly adult for a SpongeBob episode. Examples include Miss Thing, a giant robot that is dressed in scanty clothes (Sandy even calls it a "skank"), and the revelation that the original I.J.L.S.A. are now at a nudist beach.
These jokes are mild in comparison to Ren & Stimpy "Adult Party Cartoon", but feel more at home in something like The Simpsons.
When the episode was whittled down to a usual 11 minute run, the examples mentioned above were scrapped. It was decided, likely by Hillenburg and the showrunners, that an adult SpongeBob show wouldn't work. The show was perfect the way it was.
