Yes! Me, too! Every time this bit came on I would get really upset. I think I thought the U was trying to eat or suffocate him. I remember my mother trying to explain that the U just wants to hug him but it seemed so much more sinister than that.

There's a strange amount of pussies that were freaked out by sesame street when they were kids.

Pussies.

Kids can work themselves up into an exquisite terror over all sorts of strange thing. TVTropes' "Nightmare Fuel" section has examples ranging from "Yeah, that's kinda fucked up even now" to "Why'd you think the fox in Fox in Socks drowned horribly in the puddle bottle battle?!" (an actual example)

I don't see what the problem is -- she's kind of hot.