Audience-Alienating Premise: Similar to Sesame Street Presents: Follow That Bird, parents didn't find taking their kids to see Elmo in theaters worth the money when they could just show it to them on television for no charge. Also this was at the time when Elmo's popularity was being over-hyped to the point where he has been referred to as the "Little Red Menace" by Sesame Street traditionalists.
Crosses the Line Twice: The scene in Grouchland Jail where Big Bird sings the alphabet to cheer his friends up, to which the grouches find as pure torture and beg the guards to release them. Prison torture shouldnt be funny, but GROUCH prison torture is freakin hilarious!
Ear Worm: Many of the songs, particularly Huxley's.
And, before that, sending a giant chicken to eat him. The horror of that one is downplayed a great deal, thanks to the silliness factor, but this still makes Huxley the only major Sesame Street villain, to date, to actively attempt to kill a main character, and a toddler, at that.
Tear Jerker: Elmo realizing he's not so different from Huxley.
The end credits song, "Precious Wings."
The final scene where everyone joins in to sing "Together Forever" again. While technically also a Heartwarming scene as well, just knowing that everyone is back to loving each other being kind after such hardship is enough to bring tears into someone's eye.